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Why I Love Dividend Stocks That Go Nowhere
Flat Price, Fat Yield: Squeezing out every penny
As a retired investor, I prioritize steady income and capital preservation over chasing high-risk returns. My portfolio is weighted heavily toward high-quality dividend-paying stocks — companies with reliable earnings and a history of rewarding shareholders. But in today’s market, even the best dividends can feel a bit lean.
Enter the covered call (CC). I’ve been using them for years to enhance income from laggards in my dividend portfolio. It’s intuitive that option premiums can boost yield, but there are important nuances to consider when writing those contracts to optimize returns.
The Basics
Let’s use F (Ford Motor Company) as an example. Ford currently pays a $0.15 quarterly dividend — that’s $0.60 annually. At the current share price of $10.44, it works out to a 5.74% annual yield.
In an income-focused investment approach, yield matters as much as price. Now, consider earning an additional $0.17 per share quarterly from writing (selling) calls. The last trade for the June 27 call (6 weeks to expiration) at the $11.50 strike was $0.09, or about $0.085 after broker commission. Writing two calls per quarter generates roughly $0.17 per share.
