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self directed investor
  • Get Paid To Own Discounted Dividend Stocks 0 comments
    Jan 10, 2013 10:59 AM | about stocks: CSX, INTC, KSS, OXY, TEVA

    With S&P 500 at 5 years high, it is hard to find stocks that are attractive in value. Fortunately, there are few left that offer good long term value in addition to paying regular dividends.

    I am going to discuss 5 value, dividend paying stocks below. All of the after mentioned stocks appeared on David Fish's (dripinvesting.org/Tools/Tools.asp) contenders/challengers list and earned a BUY rating from Morningstar and Bank of America/Merrill-Lynch (Except for Kohl's).

    As a bonus feature to make my very first article on SA a memorable one, I am going to post my real time trade made with those 5 stocks options.

    I am going to update this real time portfolio on a regular basis. Of course, I will be adding or deleting positions as market conditions change. So, let's go to work.

    The first stock is Intel Corporation (INTC):

    The well known, world class, computer chip making company had a rough year. Currently trading at $21.3, very close to its value on January 8, 2008. The stock has a 4.2% dividend yield.

    The second stock is Teva Pharmaceutical Industries (TEVA):

    Teva is the largest generic drugs manufacturer in the world. Currently, trading at or near its 52 weeks low. It posts a dividend yield of 2.1% and is a proud member of the dividend contenders list.

    The third stock is Occidental Petroleum Corp (OXY):

    Occidental petroleum is a fortunate 500 company. It engages in the exploration and production of oil and gas properties in the USA and internationally. Currently, it posts a dividend yield of 2.7% and carries a buy rating from S&P and Morningstar.

    The fourth stock is CSX Corp (CSX):

    CSX provides rail-based transportation services. It is currently trading at $20.53, very close to its 52 weeks low of $18.88. It posts a divided yield of 2.7%.

    The fifth and last stock is Kohl's Corp (KSS):

    Kohl's Corp is not a member of the dividend champion list. It started to pay dividend less than 2 years ago. However, it raised its dividend from 25 cents in 2011 to 32 cents every quarter about a year after it started paying dividend regularly. It is currently trading near its 2 years low at $41.95 and posts a dividend yield of 3%.

    Now, here is the catch. When I decided to enter a position in those stocks, I decided to approach it different from the traditional way of buying a little at a time and adding to the positions from there.

    I decided to write (sell), cash covered put options on them. This approach allows me to:

    1. Earn cash while waiting for the options to expire; Most of the options traders know that if you are the option underwriter (seller), there is far greater chance of the option expires worthless than having the options put/ called away to/from you respectively.

    2. The worst case scenario is to have the options put to you i.e. I have to buy them at the promised (strike) price which is close to the stocks lower end of their 52 weeks low any way. By selling put options, you will lower the cost basis of owning the stock; never pay sticker price.

    3. Selling put options will allow you to adjust your position in case the trade gets wrong and the underlying stock price continues to drop.

    4. The disadvantage of selling puts is that you will miss the opportunity in case the underlying stocks start to rally. I am not particularly worried about this issue since I am a horrible stock picker any way (I am sure I can share stories with SA readers about horror stock picking stories; will defer this to a different article).

    Finally, here is the table with my positions listed in actual time and quotes at the time of purchase. These are all sell to open, cash covered put positions:

    StockTransaction DateStrike PriceExpiration datePremium
    OXY12/20/2012$ 82.5January 2014$ 1200
    TEVA12/31/2012$ 40January 2014$ 536
    INTC12/31/2012$ 22January 2014$ 355
    CSX01/03/2013$ 22.5January 2014$ 360
    KSS01/03/2013$ 45January 2014$ 680

    Total cash required for the covered positions: $ 21200

    Total Premium received: $ 3131

    Maximum profit potential if options expired worthless: 14.7%

    Disclaimer: I have sell to open, cash covered put options on TEVA, INTC, CSX, OXY and KSS.

    Disclosure: I am long INTC, CSX, OXY, TEVA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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