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Sophisticated dividend investors can sweeten their income streams by writing calls on the stocks they own. The resulting position is called a covered call, a favorite options strategy among retail investors.

Which stocks should be considered for a covered call strategy? The following screen was employed to find promising candidates:

Dividend yield. Each stock pays a dividend yield of at least 2%, which is in excess of the 10-year treasury bond and the dividend yield of the S&P 500 (NYSEARCA:SPY). Payout ratios exceeding 100% were excluded.

Existing call option market. These stocks have call markets. Not all stocks do.

Liquid markets. Only large-cap stocks with average volumes of 1 million shares traded per day were considered. Options markets tend to be more liquid for larger and more heavily traded stocks

Volatility and safe Altman Z-scores. Each stock placed in the "safe" category according to this bankruptcy risk measure. However, each stock had an average monthly volatility exceeding 2%, indicating that options buyers could be willing to pay for call options.

Price multiples, dividend histories, and return on equity histories are provided below:

Applied Materials Inc. (NASDAQ:AMAT) recently traded at $12.79 per share. At this price level, the stock has a 2.5% dividend yield. For seven out of the past 10 fiscal years, a share of AMAT paid a total of $1.48 in dividends. Of these dividend payments, a total of $1.26 was paid in the last five years.

AMAT shareholders have seen a 19.4% change in share price over the past year. Shares of this large-cap stock trade at a price-to-book ratio of 1.9, a price-to-earnings multiple of 8.8, and a price-to-sales multiple of 1.6 (trailing twelve months). Over the past decade shareholders saw an 11.4% average annual return on equity.

Emerson Electric Co. (NYSE:EMR) recently traded at $52.46 per share. At this price level, the stock has a 3.1% dividend yield. For 10 out of the past 10 fiscal years, a share of EMR paid a total of $10.38 in dividends.

EMR shareholders have enjoyed a 12.6% change in share price over the past year. Shares of this large-cap stock trade at a price-to-book ratio of 3.7, a price-to-earnings multiple of 16.1, and a price-to-sales multiple of 1.6 (trailing twelve months). Over the past decade shareholders saw a 19.9% average annual return on equity.

Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) recently traded at $46.48 per share. At this price level, the stock has a 2.2% dividend yield. For seven out of the past 10 fiscal years, a share of FCX paid a total of $3.69 in dividends. Of these dividend payments, a total of $2.62 was paid in the last five years.

FCX shareholders have seen a 27.1% change in share price over the past year. Shares of this large-cap stock trade at a price-to-book ratio of 2.8, a price-to-earnings multiple of 9.7, and a price-to-sales multiple of 2.1 (trailing twelve months).

Corning Inc. (NYSE:GLW) recently traded at $13.58 per share. At this price level, the stock has a 2.2% dividend yield. For five out of the past 10 fiscal years, a share of GLW paid a total of $0.82 in dividends. Of these dividend payments, a total of $0.70 was paid in the last five years.

GLW shareholders have seen a 4.6% change in share price over the past year. Shares of this large-cap stock trade at a price-to-book ratio of 1.0, a price-to-earnings multiple of 7.7, and a price-to-sales multiple of 2.7 (trailing twelve months). Over the past decade shareholders saw a -8.5% average annual return on equity.

Gap Inc. (NYSE:GPS) recently traded at $21.71 per share. At this price level, the stock has a 2.1% dividend yield. For 10 out of the past 10 fiscal years, a share of GPS paid a total of $2.28 in dividends. Of these dividend payments, a total of $1.72 was paid in the last five years.

GPS shareholders have seen a 17.0% change in share price over the past year. Shares of this large-cap stock trade at a price-to-book ratio of 4.0, a price-to-earnings multiple of 12.6, and a price-to-sales multiple of 0.7 (trailing twelve months). Over the past decade shareholders saw an 18.6% average annual return on equity.

Mattel Inc. (NASDAQ:MAT) recently traded at $31.53 per share. At this price level, the stock has a 2.9% dividend yield. For 10 out of the past 10 fiscal years, a share of MAT paid a total of $5.51 in dividends. Of these dividend payments, a total of $3.73 was paid in the last five years.

MAT shareholders have enjoyed a 13.6% change in share price over the past year. Shares of this large-cap stock trade at a price-to-book ratio of 4.4, a price-to-earnings multiple of 15.6, and a price-to-sales multiple of 1.7 (trailing twelve months). Over the past decade shareholders saw a 21.8% average annual return on equity.

Staples, Inc. (NASDAQ:SPLS) recently traded at $14.77 per share. At this price level, the stock has a 2.7% dividend yield. For seven out of the past 10 fiscal years, a share of SPLS paid a total of $1.83 in dividends. Of these dividend payments, a total of $1.53 was paid in the last five years.

SPLS shareholders have seen a 6.3% change in share price over the past year. Shares of this large-cap stock trade at a price-to-book ratio of 1.4, a price-to-earnings multiple of 10.8, and a price-to-sales multiple of 0.4 (trailing twelve months). Over the past decade shareholders saw a 16.4% average annual return on equity.

T. Rowe Price Group, Inc. (NASDAQ:TROW) recently traded at $59.30 per share. At this price level, the stock has a 2.1% dividend yield. For 10 out of the past 10 fiscal years, a share of TROW paid a total of $6.26 in dividends. Of these dividend payments, a total of $4.38 was paid in the last five years.

TROW shareholders have seen a 4.1% change in share price over the past year. Shares of this large-cap stock trade at a price-to-book ratio of 4.4, a price-to-earnings multiple of 20.5, and a price-to-sales multiple of 5.5 (trailing twelve months). Over the past decade shareholders saw a 20.6% average annual return on equity.

Texas Instruments Inc. (NASDAQ:TXN) recently traded at $33.93 per share. At this price level, the stock has a 2.0% dividend yield. For 10 out of the past 10 fiscal years, a share of TXN paid a total of $2.25 in dividends. Of these dividend payments, a total of $1.78 was paid in the last five years.

TXN shareholders have seen a 17.2% change in share price over the past year. Shares of this large-cap stock trade at a price-to-book ratio of 3.5, a price-to-earnings multiple of 18.1, and a price-to-sales multiple of 2.8 (trailing twelve months). Over the past decade shareholders saw a 16.2% average annual return on equity.

Valero Energy Corporation (NYSE:VLO) recently traded at $24.63 per share. At this price level, the stock has a 2.4% dividend yield. For 10 out of the past 10 fiscal years, a share of VLO paid a total of $2.77 in dividends. Of these dividend payments, a total of $2.15 was paid in the last five years.

VLO shareholders have seen a 17.0% change in share price over the past year. Shares of this large-cap stock trade at a price-to-book ratio of 0.8, a price-to-earnings multiple of 6.3, and a price-to-sales multiple of 0.1 (trailing twelve months). Over the past decade shareholders saw a 12.5% average annual return on equity.

Walgreen Co. (WAG) recently traded at $33.65 per share. At this price level, the stock has a 2.7% dividend yield. For 10 out of the past 10 fiscal years, a share of WAG paid a total of $3.53 in dividends. Of these dividend payments, a total of $2.55 was paid in the last five years.

WAG shareholders have seen a 1.8% change in share price over the past year. Shares of this large-cap stock trade at a price-to-book ratio of 2.0, a price-to-earnings multiple of 11.4, and a price-to-sales multiple of 0.4 (trailing twelve months). Over the past decade shareholders saw a 17.5% average annual return on equity.

In addition to being promising covered call candidates, many of these stocks are trading at compelling valuations. AMAT, FCX, GLW, GPS, SPLS, VLO and WAG are cheap at today's prices. Dividend investors ought to consider adding these names to their income portfolios, and should consider supplementing their income by writing calls.


Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Disclaimer: This article was written to provide investor information and education, and should not be construed as a guarantee or investment advice. I have no idea what your individual risk, time-horizon, and tax circumstances are: please seek the personal advice of a financial planner. This article uses third-party data and may contain approximations and errors. Please check estimates and data for yourself before investing.

Source: 11 Dividend Stocks For Covered Call Writing