A Great Start for a Winning Strategy
This is the last update of the year. The first issue came out on June 2nd of this year. The end of the first year is a good time review things, so let’s recap.
The purpose of this advisory is to generate a high double digit annual income while not only preserving your principle but growing it as well. Here are the returns generated so far from both expired position as well as those that are still pending.
Returns from expired call trades
|Brookfield Infrastructure Partners (BIP)
|Innovative Indus Props (IIPR)
|US Bancorp (USB)
Returns from pending call trades
|not called 11.2%
|B&G Foods (BGS)
|not called 10.25%
|Enterprise Prod. (EPD)
|not called 9.3%
|not called 15.3%
|US Bancorp (USB)
|not called 5.4%
There have only been less than seven months since this advisory has been trading and we are very well on track to generate double digit income returns. Of course, the market has trended higher since the advisory was established. That helps.
That said, several positions that have not moved higher, or only by a little, have been taken to generate a significant income. Even in a flat market and often in a down market we can generate strong income returns. The returns will be higher in an up market, but the relative returns will be better in flat or down markets.
The situation looks bright in 2021. Several high dividend paying stocks and sectors have had a big move higher after the vaccine announcements. These stocks still offer value and high dividends and should continue to move up as the economy moves toward a full recovery in the months ahead. It promises to be a fantastic environment to generate high dividends and sell high priced calls.
Stay tuned. You’re in the right place at the right time in one of the few places that can provide a serious income in a low interest rate world. And there should be lots of great opportunities in the near future.
Have a Happy New Year!
Stock Portfolio Recap
AbbVie Inc. (ABBV) Yield 5.0%
This is a fabulous longer term holding that should continue to pullback in the weeks ahead if the recent pattern prevails. The calls written on ABBV expire on Thursday at a 100 strike price (shares are currently 103.45. At this point it seems likely that the stock will be called away, but there is still a decent possibility it won’t. If it gets called we will get a 21% return from the stock (between the two calls written, dividend and capital appreciation). If not, we can keep collecting dividends and writing calls in the future. HOLD
Altria (MO) Yield 8.3%
Although the stock has had a nice bounce higher in recent months, it still has not broken a longer-term downtrend. The company will likely have to prove it can replace shrinking smoking volumes with other sources of revenue, which it has not yet been able to do. But it is still a strong income stock in the near term. This advisory has already written two calls on MO and collected three dividends. We will get strong 15% or 16% returns on the stock regardless of whether it gets called away on January 15th or not. HOLD
B&G Foods, Inc. (BGS) Yield 6.5%
The packaged food company has been very strong. After pulling back from the high in the summer, it looks like a pandemic beneficiary stock that the market was moving away from as the vaccines should end the lockdowns. But the virus got worse in the near term and BGS sprung back to life. It’s a great holding beyond the pandemic because earnings will be at a higher level for a long time. It’s difficult to say if investors are simply rewarding BGS because higher pandemic revenues will last longer or they have realized that it will remain a good value in the post pandemic market. BUY
Chevron Corp. (CVX) Yield 6.1%
This position in brand new, just added in last week’s monthly issue. The story is simple. Chevron is the best of the large oil companies because it is the lowest cost producer and entered the recession with the strongest balance sheet. It can grow profits very quickly as the situation improves. The economy is sure to improve in 2021 as the vaccine is distributed and lockdown restrictions subside. CVX offers great value, a safe and high dividend, improving fundamentals, and momentum as well. After a huge energy sector rally, a consolidation provided a buying opportunity. We will look for an opportunity to write a call in the weeks and months ahead. BUY
Enterprise Product Partners (EPD) Yield 9.0%
After a huge 30% move in a short time, this midstream energy company stock has pulled back about 8%. As I mentioned in past updates and advisories, this is a normal consolidation after such a big spike higher. The main story is still intact. EPD should be looking ahead to a very good 2021 as we get to the other side of this pandemic. But we used the high flying days to lock in a great income on the stock and it now below the strike price of 20 for January 15th expiration. We’ll see what happens in the weeks ahead. BUY
U.S. Bancorp (USB) Yield 3.6%
Recent performance has been strong. After a spike higher, it hasn’t consolidated but rather continues to move higher at a slower pace. Banks also got a boost from being allowed to buy back shares again and USB already announced a $3 billion plan. This best-in-class large bank still offers great value and it should be a solid performer as the economy moves to full recovery. It also has something it hasn’t really had in a long time, momentum. It’s only a bit above the strike price for January 15th expiration. We’ll see what kind of mood the market is in over the next few weeks. BUY
Valero Energy (VLO) Yield 7.0%
This refiner is a similar recent story to EPD. After a bigger spike higher, it’s had a more dramatic consolidation. When the stars align, VLO can move higher very quickly. The market is already at least partially pricing in a full recovery in the New Year, and that full recovery will align the stars for VLO. Despite a big recent move, VLO still has miles to go to even get back to pre-pandemic levels. We haven’t yet written a call because of the belief that there is more advantage to be had from capital appreciation in the near term. BUY
Existing Call Trades
Sell ABBV Dec 31 $100 call at $3.30 or higher
It’s really coming down to the wire with just two days left until expiration. Here’s the deal. The strike price is 100 at ABBV is currently trading at 103.85 per share. It has been moving down from the high of about 108 for weeks. It seems unlikely to fall below 100 in the next couple of days but we’ll see. If the stock gets called, we will get a 21% return between the two calls written and dividends. And there could be an opportunity to buy it back again at a cheaper price in the weeks and months ahead.
Sell EPD Jan 15 $20 call at $0.80 or higher
As the stock has move below the strike price (currently 19.80 per share) and there is only a little more than two weeks until expiration, the calls have moved below the target price to 0.39. It will depend on if the energy sector has another thrust higher in the first weeks of 2021. We are set up to lock in a great income return if the stock is called. If not, I’m happy to continue to collect dividends and write more calls in a promising New Year.
Sell USB Jan 15 $45 call at $2.00 or higher
Despite the fact that the shares have moved higher (currently 46.45 per share) the calls are still priced below the target level at 1.89. It only has a couple weeks of time value left and share price is tentative ahead of the New Year, when investors will sober up and refocus. It could go either way by expiration but we will be in good shape with either scenario.
Sell MO Jan 15 $40 call at $1.90 or higher
While the future of this company and stock is still very much in question, it’s a great income stock as of now, with a safe and high dividend and decent upside momentum. The calls are above the target price at 2.04 as the stock is currently 41.50. We’ll see what happens in the next few weeks. We are set up for great income returns either way.
If the stock closes above the 40 strike price, we will lock in a 16.1% return in seven and a half months (between the 3 dividends and the 2 calls). If not, we will have locked in a 15.3% income return.
Sell BGS February 19 $27.50 call at $2.40 or higher
This stock continues to forge higher and is well above the strike price at 30.44. The calls are priced above the target at 3.00. BGS doesn’t have far to go to get to the recent high of 31.93. We’ll see of it pulls back after that. There is still a long way to go until expiration on February 19th. A close above 27.50 (currently 29.28) will provide a 13.5% return. A close below the strike will provide a 10.25% income return.