Would you like to earn over 8% from a DOW 30 dividend Tech stock with a good dividend growth rate? This article will illustrate 2 ways to accomplish this, in an approximately 7-month term, which would earn you annualized yields of over 14%.
Tech dividend stock Microsoft, (MSFT), which languished for years in the sub-$30 range, finally made it all the way to $32.74 before the 2012 spring pullback, but now it appears to be climbing toward the $30-plus range again:
(Click to enlarge)
Dividends: MSFT increased its quarterly dividends by 25% in 2011, up to $.20/share, from $.16, and also has a much higher 5-Year dividend growth rate than the 3.75% industry average dividend growth rate:
Earnings Growth Valuation: MSFT's growth for fiscal year ending 6/30/12 is estimated to be flat, but it has a projected fiscal year ending 6/30/13 growth rate of over 15%. This higher growth rate, coupled with MSFT's historically low P/E of 10.67, gives it an undervalued PEG of .70 for 2013:
(Click to enlarge)
If you'd like to improve on MSFT's dividend yield, selling January covered calls or cash secured puts will currently earn you over an 8% yield.
Cash Secured Puts: The January 2013 MSFT $30.00 put option is currently paying over 6 times MSFT's next 2 quarterly dividends, resulting in an annualized yield of nearly 15% for this 7-month term.
(You can see more info on this and over 30 other put options trades in our Cash Secured Puts Table.)
(Click to enlarge)
Covered Calls: You can also earn over 8% on MSFT, via selling covered call options. The catch with the covered calls is that, if MSFT goes above the $30.00 strike price, before MSFT's ex-dividend date in November, your shares may get sold/assigned before you collect the second $.20 quarterly dividend, which would reduce the yield. There's a potential for this to happen near the first ex-dividend date in August, but, in general, shares tend to get assigned closer to the option expiration date.
(More trading details are listed in our Covered Calls Table, which has over 30 other trades):
(Click to enlarge)
Here's a table which illustrates all of the payout scenarios for the above covered call trade. Even with getting assigned before the first ex-dividend date, the nominal yield is still over 7.5%, and the annualized yield is very high, since it's only a 2-month holding period:
(Click to enlarge)
Financials: In addition to having very low debt, and a huge Interest Coverage ratio, MSFT's Management Efficiency and Operating Margin ratios are superior to industry averages:
(Click to enlarge)
Technical: Up over 14% year-to-date, MSFT has gotten some support from increased Institutional buying over the past few months. It's in neutral territory, neither oversold or overbought at present:
(Click to enlarge)
Disclaimer: This article is written for informational purposes only and isn't intended as investment advice.
Disclosure: I am long MSFT. I'm long MSFT via being short MSFT put options.
