Verizon Communications, Inc. (NYSE:VZ) is a holding company whose subsidiaries provide communications services, including wired and wireless telephone, broadband Internet, and digital television and network services to customers worldwide. The company operates in two segments: Wireline and Domestic Wireless. Born in 1983 out of the antitrust breakup of "Ma Bell" (the original AT&T Corp), Verizon was known as Bell Atlantic until 2000.
This chart shows that VZ has a steady payout history, and has consistently increased its payout, even during the financial crisis of 2008-2009.
Verizon went ex-dividend on July 6, 2012 and paid qualified dividends of .50 on August 1, 2012. The next quarterly dividend has not been officially announced, but we can safely anticipate an ex-dividend date of October 5, 2012. Earnings are scheduled for October 18, before market open.
Based on the payout history, the dividend yield is 4.48%, which is a nice stable yield - but that's not the only reason I favor this stock. Let's look at the chart below:
Verizon has a pattern, and patterns are actionable events. Look at the chart -- the blue channels -- this stock bases in this channel, up and down for months before it resolves to the next level (which has been consistently up since July 2010). Because Verizon has a history of this pattern, we can collect extra premium while waiting for the next dividend.
Verizon is currently at the bottom of its channel; therefore, it's in a prime place for new positions.
If you do not have a current position, you may consider entry via a cash backed put -- or "naked put" -- at the price you would be willing to buy the stock at. Do not sell a put at any level you do not want to own the stock at, or you may wake up one morning and find you've been put the stock and end up with a margin nightmare. If you enter via this method, and are not assigned the stock, you simply keep the premium collected when you sold the put. If you are assigned the stock, you simply wait for it to appreciate to the upper channel, then sell a call option against your common stock, collecting a credit. Using this method, you've been able to pick your price, and have a probable price target.
Putting it all together: The goal is to own Verizon, collect a quarterly dividend from your stock holding, and make a monthly income while waiting.
The bottom channel is around $44, so I would sell to open an August 45 put, collecting a premium of .55 or better. As the selected put is in the money and likely to be assigned, it will bring your cost basis to $44.45, which is slightly below the channel. I prefer this to buying the stock right here and now because the price is $44.60. The August puts expire next Friday, so in the volatility that is expiry week, you have a decent chance at getting filled.
After you've been filled, wait for the stock to appreciate at least to the top of the channel -- it has twice spiked to 46.50ish, then made easily recognizable reversal candles -- see the top wicks? Those are the reversal candles. I expect continued consolidation for a bit as the bollinger bands are flat on the top and bottom -- they would be widening if something important was about to happen.
We are now assuming we've been assigned (or already own the stock). I'd like to point out that the bottom of the channel is also the 50day ema, which has acted as a solid support since April 2010. As we are anticipating an ex-dividend date of October 5, 2012, we need to make sure to select a call that keeps us in the stock for that event. For this to happen, I'd choose the October 47 calls, as they expire after the stock goes ex-dividend, but WAIT to sell them until the stock has reached the top channel, and made that reversal candle. The volatility will spike on that event, and you should be able to get elevated premiums. Remember, the stock could run right to the top channel tomorrow, and we don't want to get our stock called away before it goes ex-dividend.
Once you have sold the call, if history repeats itself, you simply wait until the price returns to the lower channel, and either buy the call back for less than you sold it for (realizing the monthly income), or in the best case scenario, let it expire worthless (keeping the entire credit as your monthly income). Remember that options are designed to go to zero on a certain date and time, so why not have time on your side? Each time the price goes to the top of the channel and you see that reversal candle starting, simply repeat the same exercise. In the chart above, you can see two opportunities already to collect options premiums at the top of the channel, and two entries to get long the stock at the bottom via short puts or simply buying the common.
Now looking at the chart, and the stellar run the stock has had, I would expect it to break to the upside yet again. It would be prudent to consider only selling calls against a portion of your position so, in the event the stock does go parabolic again, you still have shares to participate in further upside. We never need to be all in or all out of a position. We're just trying to massage our returns a little bit. As always, be mindful of position sizes, as they are an important part of risk management.
Using this method, we can buy a stock at our preferred price, and collect a monthly income and a quarterly dividend while entering an extended stock with the least risk possible.
Disclaimer: MSCM and/or I may or may not have a position in this stock, which may or may not be exited without advance notice. Data is provided for informational and educational purposes only and is not offered as investment advice. Timing of transactions can be critical to the success of a position. MSCM, its employees or owners shall not be liable for any errors or delay in the content, or for any action taken in reliance on any content provided within. Opinions expressed here are the sole opinions of the author and not representative of any firm view.