The Chained CPI - How Big Of A Difference Does It Make? [View article]
Dear Arthur.
I am so happy to read your article as I was wondering about the answer to the posed question.
When percentages are given I am always left wondering as to what is the numerator and what is the denominator. Two of your statements helped clarify my dilemma.
The following are from your article; "From December 1999 to December 2012, the Chained CPI was .28% per year less than CPI-W."
"Note: From December 1999 to December 2012, chained CPI averaged 2.17% and CPI-W averaged 2.45%."
The 0.28% difference seems miniscule when considered in the context of 100 - .28 = 99.72 %. A decrease 28 cents out of $100 in benefits.
But is huge in the context of .28/2.17 x 100 = 12.9% A decrease of $12.9 out of $100 and compounded at 12.9% less every 10 years. At 12% it means the additional benefit would be cut in half every 60 years. ( law of 72's is 72 divided by compound interest rate equals number of years to double or half.)
My math may not be perfect but I believe the example is enlightening.
Compounding interest would really make this a BIG loss of benefits over the very, very long term.
Maximizing Income: High Dividend Vs. High Dividend Growth [View article]
If the price of the stock appreciates at the same rate as the dividend, then in about 7 years the total return of the HG is about equal to HY. At 14 years HG wins easily.
Making Sense Of InvenSense And STMicroelectronics NV [View article]
Thank you for all the information. I was wondering why INVN price has been so low. Your article provides the concerns and uncertainty of the company and its products.
Baird has cut InvenSense (INVN -5%) to Neutral on valuation grounds, and that's producing a steep selloff on an up day for equities. Earlier this week, the company showed off a 3-axis gyroscope said to offers a smaller form factor than competing products, and a 9-axis motion sensor said to offer superior power consumption. InvenSense took off last month following its FQ3 beat. [View news story]
What's wrong with this price for that growth? The aversion for this company makes me very suspicious.
Building A 6% Income Portfolio For 2013 (Part 5b): Consumer Discretionary 'Buy Zones' [View article]
Because I have read the use of CONSERVATIVE OPTION STRATEGIES is a losing proposition and therefore I would like to see the results of a real portfolio over a 3-20 year period of effectively using this method. I have done it successfully for a couple of yearson a limited basis but wonder if I am fooling myself.
I have copied and pasted your Part one here so others may see it easily.
4. UTILIZE CONSERVATIVE OPTION STRATEGIES
While the bulk of our 6% target yield will come from dividend income, we believe that investors can generate an additional 2%-3% per year in option income by implementing the conservative strategies discussed below.
Covered Calls
Although the covered call strategy can be utilized in any market condition, it is most often employed when the investor desires to either generate additional income (over dividends) from shares of the underlying stock, and/or provide a limited amount of protection against a decline in underlying stock value. Investors should consider the following three components when choosing a strike price for their covered call strategy:
Premium Yield (%) - The additional yield generated by the call premium (which is your downside protection from the current price). The more volatile the stock, the higher the premium (i.e., the higher the risk). Margin of Safety (%) - The margin of safety is the amount that the stock would have to drop from the current level (before expiration) to completely offset the call premium and the dividend yield. Note: If the underlying stock does not pay a dividend, the Margin of Safety will be equal to the Premium Yield. Upside Profit (%) - The upside profit, which assumes that the option is assigned at expiration, is equal to the premium received + dividends received + the difference between strike price and current price. The more volatile the stock, the higher the expected upside profit. The table below highlights various covered call options for Microsoft Corp (MSFT).
Depending on which covered call option you choose, you could enhance your income yield on MSFT by 70-290bps over the next 2-3 months. Clearly, covered calls are a tradeoff between premium yield and upside profit. The higher the premium yield, the lower the upside profit (i.e., the higher the probability that the buyer of the option will exercise his right to purchase your stock).
As a long-term dividend investor, you would obviously like to avoid losing your stock. However, we feel that this is a prudent risk to take in the current market environment. Stable risk-adjusted income yield will continue to be difficult to come by in the years to come and investors should definitely consider implementing a covered call strategy in their portfolio.
Cash-Secured Puts
We often use a cash secured put strategy to generate income while we patiently wait for the "buy zones" on high-rated stocks that we are stalking. Remember, if you sell a put, you have an obligation to purchase the stock at a predetermined price (strike price) on or before the expiration date (if the buyer of the put option wants to sell you the stock). Clearly, the risk is that the stock drops significantly below the strike and you are forced to buy the stock at a price above market. That said, below are our two risk management rules of put selling:
Only sell put options on stocks that you want to own at the price you want to own them. With a put selling income strategy (focused on out-of-the-money puts), you get paid to wait for the price you want on a stock. If the price never drops to your strike, you get to keep the premium (income) as a consolation prize. Your downside is owning the stock at the strike price (keep that in mind as you analyze the ideas below). Don't sell "naked." Just because options offer you leverage, it doesn't mean that you have to use the leverage. We recommend securing your short put position with cash (i.e., don't sell on margin). If you aren't willing to risk the cash to back it up...don't sell the put. The table below highlights stocks which have a current yield over 2.5% and are stocks that we would love to add to our portfolio. When choosing a strike price for a cash-secured put strategy, we try to make sure our break-even price on the option trade is in or below our target "Buy Zone". On average, the stocks below have a 2-4 month premium (income) yield of 1.6% with a margin of safety of 8.5%. Note: We prefer utilizing options with expiration dates that are at least 2-4 months out to reduce trading costs.
Clearly, cash-secured puts are a tradeoff between premium yield and margin of safety. Stocks with higher implied volatility, like American Capital Agency (AGNC), have higher premium yields to compensate the investor for the higher volatility. These stocks will also typically have a higher margin of safety.
InvenSense (INVN +1.7%) rallies after Pac Crest starts coverage with an Outperform: the firm is encourage by healthy design win activity and aggressive capacity expansion plans for InvenSense's motion sensors, speculates iPhone/iPad wins are possible in 2013, and predicts the adoption of gyroscopes within cheaper smartphones will grow this year - gyroscopes are more costly than the accelerometers typically used in cheap smartphones. FQ3 results arrive tomorrow. [View news story]
Does this mean INV motion sensors, gyroscopes, will be put in cheaper smartphones and the phones will raise the prices? How much does INV get for ine of those Gyros.
What Stocks Are Most Commonly Held By Dividend Growth Investors? [View article]
Our First Quarter Retirement Income Portfolio Review [View article]
34 pay below 4.9%.
Caution: 7 High Yield Dividend Champions With Accounts Receivable Red Flags [View article]
The Chained CPI - How Big Of A Difference Does It Make? [View article]
Dear Arthur.
I am so happy to read your article as I was wondering about the answer to the posed question.
When percentages are given I am always left wondering as to what is the numerator and what is the denominator. Two of your statements helped clarify my dilemma.
The following are from your article; "From December 1999 to December 2012, the Chained CPI was .28% per year less than CPI-W."
"Note: From December 1999 to December 2012, chained CPI averaged 2.17% and CPI-W averaged 2.45%."
The 0.28% difference seems miniscule when considered in the context of 100 - .28 = 99.72 %. A decrease 28 cents out of $100 in benefits.
But is huge in the context of .28/2.17 x 100 = 12.9%
A decrease of $12.9 out of $100 and compounded at 12.9% less every 10 years. At 12% it means the additional benefit would be cut in half every 60 years. ( law of 72's is 72 divided by compound interest rate equals number of years to double or half.)
My math may not be perfect but I believe the example is enlightening.
Compounding interest would really make this a BIG loss of benefits over the very, very long term.
Maximizing Income: High Dividend Vs. High Dividend Growth [View article]
Making Sense Of InvenSense And STMicroelectronics NV [View article]
Building A 6% Income Portfolio For 2013 (Part 5b): Consumer Discretionary 'Buy Zones' [View article]
Baird has cut InvenSense (INVN -5%) to Neutral on valuation grounds, and that's producing a steep selloff on an up day for equities. Earlier this week, the company showed off a 3-axis gyroscope said to offers a smaller form factor than competing products, and a 9-axis motion sensor said to offer superior power consumption. InvenSense took off last month following its FQ3 beat. [View news story]
Risk And Reward Analysis Of 5 Dividend Stocks - Part III: Procter & Gamble In Focus [View article]
Building A 6% Income Portfolio For 2013 (Part 5b): Consumer Discretionary 'Buy Zones' [View article]
I have copied and pasted your Part one here so others may see it easily.
4. UTILIZE CONSERVATIVE OPTION STRATEGIES
While the bulk of our 6% target yield will come from dividend income, we believe that investors can generate an additional 2%-3% per year in option income by implementing the conservative strategies discussed below.
Covered Calls
Although the covered call strategy can be utilized in any market condition, it is most often employed when the investor desires to either generate additional income (over dividends) from shares of the underlying stock, and/or provide a limited amount of protection against a decline in underlying stock value. Investors should consider the following three components when choosing a strike price for their covered call strategy:
Premium Yield (%) - The additional yield generated by the call premium (which is your downside protection from the current price). The more volatile the stock, the higher the premium (i.e., the higher the risk).
Margin of Safety (%) - The margin of safety is the amount that the stock would have to drop from the current level (before expiration) to completely offset the call premium and the dividend yield. Note: If the underlying stock does not pay a dividend, the Margin of Safety will be equal to the Premium Yield.
Upside Profit (%) - The upside profit, which assumes that the option is assigned at expiration, is equal to the premium received + dividends received + the difference between strike price and current price. The more volatile the stock, the higher the expected upside profit.
The table below highlights various covered call options for Microsoft Corp (MSFT).
Depending on which covered call option you choose, you could enhance your income yield on MSFT by 70-290bps over the next 2-3 months. Clearly, covered calls are a tradeoff between premium yield and upside profit. The higher the premium yield, the lower the upside profit (i.e., the higher the probability that the buyer of the option will exercise his right to purchase your stock).
As a long-term dividend investor, you would obviously like to avoid losing your stock. However, we feel that this is a prudent risk to take in the current market environment. Stable risk-adjusted income yield will continue to be difficult to come by in the years to come and investors should definitely consider implementing a covered call strategy in their portfolio.
Cash-Secured Puts
We often use a cash secured put strategy to generate income while we patiently wait for the "buy zones" on high-rated stocks that we are stalking. Remember, if you sell a put, you have an obligation to purchase the stock at a predetermined price (strike price) on or before the expiration date (if the buyer of the put option wants to sell you the stock). Clearly, the risk is that the stock drops significantly below the strike and you are forced to buy the stock at a price above market. That said, below are our two risk management rules of put selling:
Only sell put options on stocks that you want to own at the price you want to own them. With a put selling income strategy (focused on out-of-the-money puts), you get paid to wait for the price you want on a stock. If the price never drops to your strike, you get to keep the premium (income) as a consolation prize. Your downside is owning the stock at the strike price (keep that in mind as you analyze the ideas below).
Don't sell "naked." Just because options offer you leverage, it doesn't mean that you have to use the leverage. We recommend securing your short put position with cash (i.e., don't sell on margin). If you aren't willing to risk the cash to back it up...don't sell the put.
The table below highlights stocks which have a current yield over 2.5% and are stocks that we would love to add to our portfolio. When choosing a strike price for a cash-secured put strategy, we try to make sure our break-even price on the option trade is in or below our target "Buy Zone". On average, the stocks below have a 2-4 month premium (income) yield of 1.6% with a margin of safety of 8.5%. Note: We prefer utilizing options with expiration dates that are at least 2-4 months out to reduce trading costs.
Clearly, cash-secured puts are a tradeoff between premium yield and margin of safety. Stocks with higher implied volatility, like American Capital Agency (AGNC), have higher premium yields to compensate the investor for the higher volatility. These stocks will also typically have a higher margin of safety.
A Low Beta, High Dividend Growth Rate Portfolio With 3.4% Yield And 20% DGR [View article]
A Low Beta, High Dividend Growth Rate Portfolio With 3.4% Yield And 20% DGR [View article]
InvenSense (INVN +1.7%) rallies after Pac Crest starts coverage with an Outperform: the firm is encourage by healthy design win activity and aggressive capacity expansion plans for InvenSense's motion sensors, speculates iPhone/iPad wins are possible in 2013, and predicts the adoption of gyroscopes within cheaper smartphones will grow this year - gyroscopes are more costly than the accelerometers typically used in cheap smartphones. FQ3 results arrive tomorrow. [View news story]
Building An Income Portfolio [View article]
Building An Income Portfolio [View article]