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6 Low-Yield Dividend Captures

Stocks in this article: BAX SWK CCE FTR PX LM

It is important to sell the call option hedge at or near the asking price for at least the minimum amount over intrinsic value. I don't want the option hedge unless the sale will provide at least the minimum 27 cents over intrinsic value.

If my shares are called away before trading ex-dividend (resulting from the option buyer wanting the dividend), I gain about 27 cents. The most I can make is 61 cents if I hold the covered call through options expiration day and the stock gets called upon expiration.

My last step (completed before making a trade on the same day) is to check company announcements and news sources for possible events that may cause the stock price to move. This is especially critical during earnings season.

Stanley Black & Decker, Inc. (SWK - Get Report)

Stanley Black & Decker, Inc. provides power and hand tools, mechanical access solutions, and electronic security and monitoring systems. The company was founded in 1843 and is headquartered in New Britain, Conn.
Yield: 2.32%
Dividend Amount: 41 cents
Ex-Dividend Date: June 04, 2012
Beta: 1.45

Strategy: Buy Stanley Black & Decker stock and offer to sell the June $67.50 strike or lower call for 53 cents more than the intrinsic value.

If my shares are called away before trading ex-dividend (resulting from the option buyer wanting the dividend), I gain about 53 cents. The most I can make is 94 cents if I hold the covered call through option expiration day and the stock gets called.

Stanley's price has moved lower to test support near the 200-day moving average. A break below that average is bearish (especially a second break below).

Coca-Cola Enterprises Inc. (CCE - Get Report)

Coca-Cola Enterprises, Inc. produces, distributes, and markets nonalcoholic beverages. It provides still and sparkling waters, juices, sports drinks, juice drinks, coffee-based beverages, and teas. Coca-Cola Enterprises, Inc. The company was founded in 1986 and is based in Atlanta.
Yield: 2.18%
Dividend Amount: 16 cents
Ex-Dividend Date: June 06, 2012
Beta: 1.19

Strategy:

Buy Coca-Cola Enterprises stock and offer to sell the June $28.00 strike or lower call for 46 cents over the intrinsic value. What really makes this a strong dividend capture is the unlikeliness of the shares called away before the dividend. If CCE does move up enough to incentivize option owners to call the shares early, the gain is almost 2% for two weeks. The 200-day moving average is $26.85, supporting the hedge against anything other than really bad news about the company.

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