The Income Keeps Rolling In
The beauty of dividends is that cash keeps rolling in no matter how bad the market stinks.
The market has rebounded off the lows of June, for now. There is a window where investors can focus on earnings. The bad 9.1% inflation number came out last week and the Fed appears to have tipped its hand on a 0.75% rate hike later this month. That’s an improvement form speculation of a 1.0% hike after the inflation report.
But stocks have yet to exhibit any lasting upside traction in the face of inflation, an aggressive Fed and increasing speculation of a recession in the next year. Although the market has stabilized for now, there is still a high chance that it makes new lows in the weeks and months ahead.
It’s a good time to generate as much income as possible. In addition to the high dividends, the portfolio is selling a covered call for Qualcomm (QCOM) this week. The stock has made an impressive move off the lows in recent weeks. I believe that technology is oversold and QCOM is particularly oversold as earnings are likely to remain strong for some time.
The market may be realizing that QCOM is a bargain. I expect the stock to be a lot higher in six months to a year from now and this could be the beginning of the move. But, since I don’t trust this market at all, recent action presents an opportunity to sell a high-priced call on the stock while it still has some momentum. It’s a better bet to grab a high income while it’s available than to wait around for more upside in this troubled market.
Last week, the call for Star Bulk Carriers (SBLK) expired out of the money. Although the timing of the stock purchase was unfortunate, as the market tanked afterwards, we were able to generate a near double-digit income on the position in just six weeks between the captured dividend and the call premium.
Trades This Past Month
June 22nd
Qualcomm (QCOM)– Rating change “HOLD” to “BUY”
July 15th
SBLK July 15th $34 calls at $1.60– Expired
July 20th
Sell QCOM Sep 16th $145 calls at $10.00 or better
Innovative Industrial Properties, Inc. (IIPR) -Rating change “HOLD” to “SELL”
Trade Alert
Sell QCOM Sep 16th $145 calls at $10.00 or better
Expiration date: September 16th
Strike price: $145
Call price: $10.00
Qualcomm Inc. (QCOM)
I do like the stock here. It’s undervalued as earnings should remain strong even in a slower economy. While the price should be higher six months or a year from now, I don’t trust this market over the next few months. QCOM has had a nice bounce off the recent lows, and it makes sense in this market to exploit the opportunity to harvest a high income with another call premium.
Here are the three scenarios.
1. The stock closes above the $145 strike price at expiration
Call premium: $10.00
Dividends: $4.22
Appreciation: $10.35 ($145.00 strike price minus $134.65 purchase price)
Total: $24.57 (total return will be 18.25% in 16 months, and a total return of 25.4% if you sold the earlier call for 9.65)
2. The stock price closes below but near our $145 strike price.
Call premium: $10.00
Dividend: $4.22
Total: $14.22 (total income of 10.6% in 16 months, and an income return of 17.7% with the earlier call)
3.The stock price declines.
There will be $14.22 in income or $23.87 with the earlier call to offset the decline. Plus, the original purchase price is more than 10 per share below the strike price.
Portfolio Recap
Global Ship Lease, Inc. (GSL)
Yield: 9.5%
The company continues to perform well operationally. It’s also operating in an area with a positive supply/demand dynamic and shipping is likely in a secular bull market. But a cyclical international company is in the crosshairs of all this recession talk. This stock is a great longer-term hold that has gotten very oversold. It’s also had a very good week, up about 17%. We’ll see if this upside traction lasts in the weeks ahead. HOLD
Rating change “HOLD” to “SELL”
Innovative Industrial Properties, Inc. (IIPR)
Yield: 7.6%
This marijuana farm REIT was a very undervalued high-growth money maker. But it doesn’t seem to matter because this market hates anything to do with marijuana and you can’t fight City Hall. But the story deteriorated last week. One of Innovative’s tenants defaulted on a rent payment. In and of itself the damage is very minimal. But it feeds into a negative narrative that several tenants are at risk of default. Even if there are no more defaults, that risk will be greater and weigh on this stock. It’s an unforgiving market with too high of a risk that the story gets worse. It’s a big loss but we can make it back at some point in the future when IIPR gets upside momentum. SELL
ONEOK, Inc. (OKE)
Yield: 6.7%
Even OKE has been brutalized by the recent market. The energy stocks sold off and ended the rally abruptly as recession fears took center stage. But ONEOK is not dependent on commodity prices and is very resilient in any economy, as it continued to grow profits even in the pandemic. It’s a defensive company with a high and safe yield and has inflation built into the contracts. It might just be an ideal place to be over the rest of this year. BUY
One Liberty Properties, Inc. (OLP)
Yield: 7.0%
The operational performance at One Liberty remains strong and it remains a strong dividend payer. It’s in the more cyclical industrial property business where the supply/demand dynamic remains extremely strong. One Liberty should continue to deliver strong results to back the dividend and should have good upside traction when the market recovers. But the market remains highly uncertain for now. The selling might get worse in the near term. We’ll see if it moves higher and investors realize the value in a more stable market. HOLD
Star Bulk Carriers Corp. (SBLK)
Yield: 22.9%
SBLK has been under pressure as a cyclical international company amidst the current recession fears. The stock is at a bargain price and is an incredible income generator, especially with the call premium. The supply/demand dynamic remains strong for these shippers and rates will likely remain well above the levels of the last decade in the years ahead. We are likely in a secular bull market for shipping. SBLK has rebounded strongly and is up about 19% is the last two weeks. Hopefully the rally lasts. But if recession expectations get worse, the stock could fall again. HOLD
Qualcomm Corp. (QCOM)
Yield: 2.1%
I believe in this stock. The selling in technology is overdone and QCOM is a shining example. Earnings are in a strong growth phase and will likely continue to be for a while. The company is also very well positioned for the longer term. The market may be realizing this as QCOM is up 23% from the low of late June. But I don’t trust this market environment as far as I can throw it. It makes sense to use the newfound traction in the stock to sell a high-priced call while the momentum is still in force. If the market does continue to rally, the other cyclical positions in this portfolio should benefit. BUY
Visa Inc. (V)
Yield: 0.8%
V got knocked back amidst all this recession talk and the downgrading of global growth projections. But is always seems to bottom in the just under 200 per share range and quickly recovers well when market selling eases. Visa continues to get a huge benefit from the removal of covid restrictions globally despite slowing global growth. Earnings blew away expectations with YOY revenue growth of 25% and 30% earnings growth. This stock should be one of the first to reverse course and move higher when the market recovers. HOLD
Existing Covered Call Trades
Sell SBLK July 15th $34 calls at $1.60 – Expired
Call premium: $1.60
Dividend: $1.65
Total: $3.25 (total income of 9.8% in 6 weeks)
The timing of the purchase was no good as the market has since tanked and taken anything cyclical with it. But we did milk this stock for a nearly 10% income in just six weeks. The longer-term prognosis for the stock is good and that huge income should be solid. It’s easier to wait out the market when you get a better than 20% annual income.
| CIA STOCK PORTFOLIO | |||||||
| Open Recommendations | Ticker Symbol | Entry Date | Entry Price | Recent Price | Buy at or Under Price | Yield | Total Return |
| Qualcomm Inc. | QCOM | 5/5/21 | $134.65 | $141.69 | $140.00 | 2.08% | 7.67% |
| One Liberty Properties | OLP | 7/28/21 | $30.37 | $25.83 | NA | 6.97% | -9.66% |
| Visa Inc. | V | 12/22/21 | $217.96 | $207.21 | NA | 0.71% | -4.59% |
| Global Ship Lease, Inc. | GSL | 2/23/22 | $24.96 | $16.69 | NA | 9.55% | -32.03% |
| Innovative Industrial Props. | IIPR | 3/23/22 | $196.31 | $91.76 | NA | 7.63% | -52.11% |
| ONEOK, Inc. | OKE | 5/25/22 | $65.14 | $56.96 | $67.00 | 6.71% | -12.56% |
| Star Buld Carriers Corp. | SBLK | 6/1/22 | $33.30 | $24.50 | NA | 22.86% | -22.54% |
| EXISTING CALL TRADES | |||||||
| Open Recommendations | Ticker Symbol | Intial Action | Entry Date | Entry Price | Recent Price | Sell To Price or better | Total Return |
| QCOM Sep 16th $145 call | QCOM220916c00145000 | Sell | $10.00 | $10.25 | $10.00 | 7.40% | |
| as of close on 7/12/2022 | as of close 7/18/2022 | ||||||
| SOLD STOCKS | |||||||
| Security | Ticker Symbol | Action | Entry Date | Entry Price | Sale Date | Sale Price | Total Return |
| Innovative Industrial Props. | IIPR | Called | 6/2/20 | $87.82 | 9/18/20 | $100.00 | 15.08% |
| Qualcomm | QCOM | Called | 6/24/20 | $89.14 | 9/18/20 | $95.00 | 7.30% |
| U.S. Bancorp | USB | Called | 7/22/20 | $36.26 | 9/18/20 | $38 | 3.42% |
| Brookfield Infras. Ptnrs. | BIP | Called | 6/24/20 | $41.92 | 10/16/20 | $45 | 8.49% |
| Starbucks Corp. | SBUX | Called | 8/26/20 | $82.41 | 10/16/20 | $88 | 6.18% |
| Visa Corporation | V | Called | 9/22/20 | $200.56 | 11/20/20 | $200 | 0.00% |
| AbbVie Inc. | ABBV | Called | 6/2/20 | $91.04 | 12/31/20 | $100 | 12.43% |
| Enterprise Prod. Prtnrs. | EPD | Called | 6/24/20 | $18.14 | 1/15/21 | $20 | 15.16% |
| Altria Group | MO | Called | 6/2/20 | $39.66 | 1/15/21 | $40 | 7.31% |
| U.S. Bancorp | USB | Called | 11/25/20 | $44.68 | 1/15/21 | $45 | 1.66% |
| B&G Foods Inc, | BGS | Called | 10/28/20 | $26.79 | 2/19/21 | $28 | 4.42% |
| Valero Energy Inc. | VLO | Called | 8/26/20 | $53.70 | 3/26/21 | $60 | 11.73% |
| Chevron Corp. | CVX | Called | 12/23/20 | $85.69 | 4/1/21 | $96 | 12.95% |
| KKR & Co. | KKR | Called | 3/24/21 | $47.98 | 6/18/21 | $55 | 14.92% |
| Digital Realty Trust | DLR | Called | 1/27/21 | $149.17 | 7/16/21 | $155 | 5.50% |
| NextEra Energy, Inc. | NEE | Called | 2/24/21 | $73.76 | 9/17/21 | $80 | 10.00% |
| Brookfield Infras. Ptnrs. | BIP | Called | 1/13/21 | $50.63 | 10/15/21 | $55 | 11.65% |
| AGNC Investment Corp | AGNC | Sold | 1/13/21 | $15.52 | 1/19/22 | $15 | 5.92% |
| ONEOK, Inc. | OKE | Called | 5/26/21 | $52.51 | 2/18/22 | $60 | 19.62% |
| KKR & Co. | KKR | Sold | 8/25/21 | $64.52 | 2/23/22 | $58 | -9.73% |
| Valero Energy Inc. | VLO | Called | 11/17/21 | $73.45 | 2/25/22 | $83 | 15.53% |
| U.S Bancorp | USB | Sold | 3/24/21 | $53.47 | 4/13/22 | $51 | -1.59% |
| Enterprise Product Ptnrs | EPD | Called | 3/17/21 | $23.21 | 4/14.2022 | $24 | 11.25% |
| FS KKR Capital Corp. | FSK | Called | 10/27/21 | $22.01 | 4/14/22 | $23 | 13.58% |
| Xcel Energy Inc. | XEL | Called | 10/12/21 | $63.00 | 5/20/22 | $70 | 12.66% |
| EXPIRED OPTIONS | |||||||
| Security | In/out money | Sell Date | Sell Price | Exp. Date | $ return | Total % Return | |
| IIPR Jul 17 $95 call | out-of money | 6/3/20 | $3.00 | 7/17/20 | $3.00 | 3.40% | |
| MO Jul 31 $42 call | out-of-money | 6/17/20 | $1.60 | 7/31/20 | $1.60 | 4.03% | |
| ABBV Sep 18 $100 call | out-of-money | 7/15/20 | $4.60 | 9/18/20 | $4.60 | 5.05% | |
| IIPR Sep 18 $100 call | in-the-money | 7/22/20 | $5.00 | 9/18/20 | $5.00 | 5.69% | |
| QCOM Sep 18 $95 call | in-the-money | 6/24/20 | $4.30 | 9/18/20 | $4.30 | 4.82% | |
| USB Sep 18 $37.50 call | in-the-money | 7/22/20 | $2.00 | 9/18/20 | $2.00 | 5.52% | |
| BIP Oct 16 $45 call | in-the-money | 9/2/20 | $1.95 | 10/16/20 | $1.95 | 4.65% | |
| SBUX Oct 16 $87.50 call | in-the-money | 10/16/20 | $3.30 | 10/16/20 | $3.30 | 4.00% | |
| V Nov 20 $200 call | in-the-money | 9/22/20 | $10.00 | 11/20/20 | $10.00 | 4.99% | |
| ABBV Dec 31 $100 call | in-the-money | 11/18/20 | $3.30 | 12/31/20 | $3.30 | 3.62% | |
| EPD Jan 15 $20 call | in-the-money | 11/23/20 | $0.80 | 1/15/21 | $0.80 | 4.41% | |
| MO Jan 15 $40 call | in-the-money | 11/25/20 | $1.90 | 1/15/21 | $1.90 | 4.79% | |
| USB Jan 15 $45 call | in-the-money | 11/25/20 | $2.00 | 1/15/21 | $2.00 | 4.48% | |
| BGS Feb 19 $27.50 call | in-the-money | 12/11/20 | $2.40 | 2/19/21 | $2.40 | 8.96% | |
| VLO Mar 26 $60 call | in-the-money | 2/10/21 | $6.50 | 3/26/21 | $6.50 | 12.10% | |
| CVX Apr 1 $95.50 call | in-the-money | 2/19/21 | $4.30 | 4/1/21 | $4.30 | 5.02% | |
| AGNC Jun 18 $17 call | out-of-money | 4/13/21 | $0.50 | 6/18/21 | $0.50 | 3.21% | |
| KKR Jun 18 $55 call | in-the-money | 4/28/21 | $3.00 | 6/18/21 | $3.00 | 6.25% | |
| USB Jun 16 $57.50 call | out-of-money | 4/28/21 | $2.80 | 6/18/21 | $2.80 | 5.24% | |
| DLR Jul 16 $155 call | in-the-money | 6/16/21 | $8.00 | 7/16/21 | $8.00 | 5.36% | |
| AGNC Aug 20 $17 call | out-of-money | 6/23/21 | $0.50 | 8/20/21 | $0.50 | 3.00% | |
| OKE Aug 20 $57.50 call | out-of-money | 6/23/21 | $3.50 | 8/20/21 | $3.50 | 6.67% | |
| NEE Sep 17 $80 call | in-the-money | 8/11/21 | $3.50 | 9/17/21 | $3.50 | 4.75% | |
| BIP Oct 15 $55 call | in-the-money | 9./01/2021 | $2.00 | 10/15/21 | $2.00 | 3.95% | |
| USB Nov 19 $60 call | out-of-money | 9/24.2021 | $2.30 | 11/19.2021 | $2.30 | 4.30% | |
| OKE Nov 26 $65 call | out-of-money | 10/20/21 | $2.25 | 11/26/21 | $2.25 | 4.28% | |
| KKR Dec 17 $75 call | out-of-money | 10/26/21 | $3.50 | 12/17/21 | $3.50 | 5.42% | |
| QCOM Jan 21 $185 Call | out-of-money | 11/30/21 | $9.65 | 1/21/22 | $9.65 | 7.17% | |
| OLP Feb 18 $35 Call | out-of-money | 11/19/21 | $1.50 | 2/18/22 | $1.50 | 4.94% | |
| OKE Feb 18 $60 Call | in-the-money | 1/5/22 | $2.75 | 2/18/22 | $2.75 | 5.24% | |
| USB Feb 25 $61 call | out-of-money | 1/13/22 | $2.50 | 2/25/22 | $2.50 | 4.68% | |
| VLO Feb 25 $83 call | in-the-money | 1/18/22 | $4.20 | 2/25/22 | $4.20 | 6.13% | |
| EPD Apr 14th $24 call | in-the-money | 3/2/22 | $1.25 | 4/14/22 | $1.25 | 5.69% | |
| FSK Apr 14th $22.50 call | in-the-money | 3/10/22 | $0.90 | 4/14/22 | $0.90 | 4.09% | |
| XEL May 20th $70 call | in-the-money | 3/30/22 | $3.00 | 5/20/22 | $3.00 | 4.76% | |
| SBLK July 15th $134 call | out-of-money | 6/1/22 | $1.60 | 7/15/22 | $1.60 | 4.80% | |