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TheStreet Open House

6 Low-Yield Dividend Captures

NEW YORK ( TheStreet) -- With a little work you can find lots of companies that are worth owning that also offer dividends.

Dividends can be a wonderful source of revenue, and each dividend payment decreases an investor's risk in his investment.

The basic requirement to receive a dividend is to be a shareholder on the day of record.

You can read on the Internet about plenty of strategies for capturing dividends, but many of them work better on paper than in practice.

I've developed my own strategies that I've tested by employing them in real trades.

Every once in a while the hedge I employ isn't enough to offset a strong adverse move, but I find that by entering into multiple trades, the gains I make more than offset the losses on the few trades that don't pan out.

Although much of the gains will come from dividends, option decay can also provide a return. This is especially true for lower-yielding dividend stocks.

Lower-yielding dividend captures have both pros and cons. Obviously, a lower yield will have less dividend to capture, but this is often more than offset by a larger option premium, easier-to-find opportunities and lless competition in writing the option hedges.

Baxter International Inc. (BAX)

Baxter International Inc., through its subsidiaries, develops, manufactures, and markets products for people with chronic and acute medical conditions. The company was founded in 1931 and is based in Deerfield, Ill.
Yield: 2.48%
Dividend Amount: 34 cents
Ex-Dividend Date: June 6, 2012
Beta: 0.48

Strategy:

Buy Baxter International stock and offer to sell the June $52.50 strike or lower call for 27 cents over the intrinsic value.

Baxter International's coming stock dividend appears to be attractive and worth the time and effort to capture. A requirement I have is that I need to be able to sell a call option in either the front, or first back month, that is in the money, and with enough premium so that I will not object to an early exercise notice (which does happen from time to time, although one can still make a profit by doing everything according to plan).

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