When this series was launched on 11/23/2011, the sky was falling, weak longs were cashing out, and the shorts were chuckling about how they were right all along. We, on the other hand, took a proactive approach and bought on that day. We either began our portfolio or added to our existing positions.
The companies are; ExxonMobil (XOM), Johnson & Johnson (JNJ), AT&T (T), General Electric (GE), Annaly Capital Management (NLY), Exelon (EXC), Procter & Gamble (PG), McDonald's (MCD), Philip Morris International (PM), Intel (INTC), Realty Income (O), ConocoPhillips (COP), Pfizer (PFE), Chevron (CVX), E. I. du Pont (DD), Duke Energy (DUK), PPL Corp. (PPL).
It worked out quite nicely.
In the following spreadsheet, which has been expanded and made even more “beautiful” we can see the dividend yield percentage we obtained on 11/23/2011, the average overall dividend yield percentage on our complete portfolio, our current portfolio value, and now a segment for the calls to sell as well as the cash we will receive from that action. It is obviously too soon to update our success from the last segment, so I removed that part and will update our progress on a monthly basis rather than in every article I write.
I will “fill in the blanks” on 12/30/2011, which will give us a better summary of how our portfolio has performed.
Part 4 of my ongoing series, “Retirement Strategies: Buy on Dips, Add to Core Holdings" will focus on our option strategy of selling calls against our holdings. Since this strategy is probably the most conservative of all option strategies, it should be rather easy to follow and implement.
By implementing this strategy with our core portfolio, we can accomplish several goals; more immediate income and a slight hedge against PPS volatility. Of course the sweetest part of this is the actual cash that goes directly into our reserve fund to be deployed at some point, perhaps on the next dip!
Our Enhanced Retirement Portfolio
Click to enlarge
a) The total average dividend yield is approximately 4.15%
b) The cash received from selling calls is approximately $1,490
As you can see, our total average yield is solid, we have deployed $100,000 in available funds towards the initial purchase, or the adding to a balanced and diversified portfolio of 17 stocks on 11/23/2011, and we now have actions to take right now to implement our option strategy for the additional income of $1,490.
Actions to Take Now
- Review your portfolio so that it looks similar to ours here, so that we can easily compare notes
- Review the column headed with “Sell Calls, Strike/Date” and locate them within your investment site, or write them down to speak with your broker
- Sell some or all of the calls suggested, or if there are ones more to your liking, sell those.
- Obviously you can choose to do nothing and just watch the portfolio if that is what you prefer
- Set up a separate basket of “Investable Cash” so that you can move the funds you receive from selling the calls into its own neat little basket.
If action is taken the way I have outlined in the portfolio, you would have an approximate amount of $1,490 in investable cash. These funds can be used for anything you desire. It is YOUR money now. For our purposes, we will keep them in the reserve basket to invest again when our stocks are on sale again.
By the way, we now have an immediate return on our initial investment of 1.49% folks. That isn’t peanuts, and nobody can take it away.
That being said, the stocks can be called away at option expirations if the share price is hit or exceeded, but I have been rather conservative with my choices, and if they are called, so be it, we still made a very nice profit, and can buy the stocks back on the next trading day anyway.
Also, please note the column where I have approximated the next ex dividend date (EX.D.Date). Keeping these dates in mind, all of the options sold should be after the ex dividend date, so we will capture the dividend even if the stock is called away. We profit this way as well. Whether the dividends are automatically reinvested or swept into our “Investable Cash” basket has no bearing on this. It is also our money.
An overall dividend yield of 4.15% in a portfolio consisting of wonderful stocks, and an options strategy of selling calls and receiving the premiums for them (1.49% in this scenario) is not a bad way to start the first quarter of 2012.
Keep in mind this does not reflect any capital appreciation either.
As Dividend/Growth investors, we realize that the capital appreciation is an added bonus we seek, but we are in this for the long term as income investors and in my opinion we are on the right path.
Disclaimer: Please do your own research and use this only as a guide. Any opinions or suggestions here are strictly that of the author and should not influence your investment strategy in and of itself. Make certain that you understand options and the associated risks involved with them as well.