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Dividend Champions Covered Calls Jan 2015
Dividend Champions is a name given to companies that have increased their dividends for 25 years in a row or more.
Given their long history of increasing dividends, it is likely they will continue to do so. If you could predict when they would next increase their dividends, you could buy some shares and write covered calls in advance of that, taking advantage of the fact that the market usually reacts positively to a company announcing an increase to its dividend.
David Fish of Moneypaper wrote today These 11 Dividend Champions Could Soon Hike Their Payouts. He points out that the majority of champions have a habit of announcing dividend increases about the same time each year. Normally the announcements come between 2-60 days before the ex-dividend date. He claims that 90% of the time these dividend increases can be predicted.
Companies On Deck For A Near-Term Dividend Increase
David identified 11 companies that are within the window of "about to increase their dividend" based on past behavior and last year's dates. 10 of the 11 have options available, which are:
(column headings: No. Years = number of consecutive years of higher dividends, MR = Most Recent, DGR = Dividend Growth Rate)
Dividend Champions With Covered Calls
If you take those 10 symbols and plug them into Born To Sell's Watchlist feature, you find 6 candidates for short-term January covered calls that yield 1%/month or more on an annualized basis (i.e. their Annual Return If Flat is >= 12%), and a deeper in the money one from MHFI that is almost there:
None of those have an earnings announcement prior to the Jan 17 option expiration date, so that removes at least one type of risk. If the companies have not announced a dividend increase by Jan 17 then you could roll to the Feb 20 expiration while you wait.
Note: These are not trade recommendations. These are candidate trades with likely dividend increases coming. Do your own research, keep position sizes modest, and stay diversified.
Mike Scanlin is the founder of Born To Sell and has been writing covered calls for a long time.