This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Big Dividend Captures With Microsoft, Walgreens, Lilly, Target and Duke

NEW YORK ( TheStreet) -- Dividend capturing is comparatively new to the retail shareholder. Prior to the Internet, transaction expenses, limited option liquidity and lack of information crafted barriers, thwarting investors from exploiting this market edge.

The most essential requirement to obtain a dividend is to be a shareholder on the necessary day of record. Options can be used to capture multiple dividends by retaining the stock and option longer than three months.

For writers of options, Theta (time decay of option premium) is their greatest comrade, and for buyers, the cruelest enemy. Options are a decaying resource much like milk, and using an option hedge while holding a stock can be profitable, even if the stock doesn't move higher. This is especially true in higher-yielding stocks, since higher-yield options have lower-time premiums, all else being equivalent.

Also, the longer I retain a covered-call position (like two weeks with a front-month option, for example) the lower the time premium is worth, all else being equal.

A requirement I have is 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 that I will not object to an early exercise notice (which does happen from time to time, but is profitable if everything is done according to plan).

My last step (completed before making a trade on the same day) is to check company announcements and news sources for possible price-moving events. This is especially critical during earnings season. (Read my 5 Oversold stocks 5 Oversold Stocks Ready for a Bounce Higher article).

Microsoft (MSFT)

MSFT Chart MSFT data by YCharts

Microsoft produces a wide range of software products for a multitude of computing devices. The company was founded in 1975 and is based in Redmond, Wash.

Yield: 2.61%
Dividend Amount: 20 cents
Ex-Dividend Date: Aug. 14
Beta: 1.01

Strategy: Buy Microsoft stock and offer to sell the August $27.00 strike or lower call for 32 cents over the intrinsic value. I will attempt to close out the trade with a gain of near 24 cents, plus dividend.

I don't want the option hedge unless the sale will provide at least the minimum 32 cents over intrinsic value. (Read my article Sprint, AT&T Rip Higher In Front of Earnings .)

If my shares are called away before trading ex-dividend (resulting from the option buyer wanting the dividend), I gain about 32 cents. The most I can make is 52 cents if I hold the covered call through option expiration day and the stock gets called away.

MSFT Payout Ratio TTM Chart MSFT Payout Ratio TTM data by YCharts

1 of 5

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,172.68 -107.06 -0.62%
S&P 500 1,994.29 -16.11 -0.80%
NASDAQ 4,527.6890 -52.10 -1.14%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs