Edison International Dividend Capture Strategy

Dec.12.11 | About: Edison International (EIX)

Edison International (NYSE:EIX)

  • Yield: 3.33%
  • Dividend Amount: $0.33
  • Ex-Dividend Date: December 28, 2011
  • Beta: 0.66

Edison International, through its subsidiaries, engages in the supply of electric energy. The company was founded in 1886 and is based in Rosemead, California.

There are several dividend harvesting approaches. Some are better than others. The trick is to minimize the amount of risk, and still have an edge. This is one of my favorite and easy to understand methods of making gains with options and dividends. I get asked often how long I normally hold the position before closing out. On average I enter into a position with the idea I may hold it for a month with the current numbers here.

In this article we will go over an upcoming dividend that I may capture with a minimum amount of risk. The criteria that I use is that I must be able to sell a call option in either the front, or first back month that is in the money, and with enough premium that I will not mind getting exercised early (which happens often and can be a good thing if the trades are executed correctly).


In combination with my buying the stock and after checking company updates, offer to sell the January $37.50 strike call for $0.42 over the intrinsic value. The option may get exercised early for a gain. If not, after qualifying for the dividend, I will attempt to close out the trade with a gain of near $0.22. If the call options does get exercised the day before Edison trades ex-dividend I will have a gain of about $0.42, and if I hold through and receive the dividend I will look to exit with a gain of about $0.75 per share.

Utilities don't offer the ability to capture their relatively fat dividends often, but Edison has enough trading volume to have relatively active options. What I especially like about Edison, is I will be very comfortable holding on to the next dividend period in the case of the stock falling as a result of the overall market. If Edison does fall, I will simply write the next front month option as close to in the money as I can.

The current book value per share is 36.97. The company has rising revenue year-over-year of $12.41 billion for 2010 vs. $12.36 billion for 2009. The bottom line has rising earnings year-over-year of $1.31 billion for 2010 vs. $945.00 million for 2009.The company's earnings before interest and taxes are rising with an EBIT year-over-year of $2.13 billion for 2010 vs. $1.40 billion for 2009.Rising revenue along with rising earnings is a very good sign and what we want to see with our companies. Be sure to check the margins to make sure that the bottom line is keeping up with the top line.

At $38.84, the price is currently above the 200 day moving average of 38.11, and below the 60 day moving average of 38.89. Looking at the price movement over the last month, the stock has fallen in price -4.22%, with a change from a year ago of 3.22%. With a modest gain compared to stocks in general, the stock is close to the same as the overall stock market. When comparing to the S&P 500, the year up to date change is 1.36%.

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Remember, you must buy a stock at least three business days before the record date (at least one business day before the ex-dividend date) to qualify for a dividend.

My last step (completed before making a trade on the same day) is to check company announcements, and news sources for possible events that may cause the stock price to move. This is especially important during earnings season.

I research the different call options and calculate the expected probabilities based on Beta, Bid, Offer, Volume traded the current day, open interest, and time value / implied volatility. The Options offer some level of protection from down moves in the stock, and provide revenue to cover the times that the options do not fully cover down moves in the stock. Income is not needed from the option Premiums, so a break even from premiums received/stock losses ratio is a win.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in EIX over the next 72 hours.

Disclaimer: I use a proprietary blend of technical analysis, financial crowd behavior, and fundamentals in my short-term trades, and while not totally the same in longer swing trades to investments, the concepts used are similar. Nothing in the article should be considered investment advise, but you may want to use this article as a starting point of your own research with your financial planner.