6 Best Choices for Dividend-Capture

NEW YORK ( TheStreet) -- Many companies offer quarterly dividends to shareholders. This can be a great source of income and with each dividend payment received, investors are able to lower their risk in an investment.

The one requirement to receive a dividend from a company is to be a shareholder on the day of record for the dividend. To be a shareholder on the day of record you must buy before the ex-dividend date and keep the shares until at least the ex-dividend date.

My first stock, Medical Properties Trust ( MPW) tops this list with a 9% yield.

MPW operates as a real estate investment trust in the U.S. The company was founded in 2003 and is based in Birmingham, Ala.

Yield: 9.09%
Dividend Amount: 20 cents
Ex-Dividend Date: June 12, 2012-
Beta: 1.54

Strategy: Buy Medical Properties Trust stock and offer to sell the June $7.50 strike or lower call for 21 cents over the intrinsic value.

The option may get exercised early for a gain. In almost all cases, I sell the call option first to ensure the stock option leg is complete. If not, after qualifying for the dividend, I will want to close out the trade near breakeven.

Large yield stocks like MPW often attract a lot of interest in dividend capturing, so the option premium may be hard to get. Some brokers offer auto-adjustment to option offering sell prices. The offer for the option short leg is adjusted as the stock price moves, much like a market-maker system. To use an option hedge with MPW will all but require an auto-price adjustment due to low liquidity.

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TOTAL S.A. (ADR) (TOT)

TOTAL S.A., together with its subsidiaries, operates as an integrated oil and gas company worldwide. The company operates in three segments: upstream, downstream and chemicals.

Yield: 6.9%
Dividend Amount: 77 cents
Ex-Dividend Date: June 13, 2012
Beta: 1.00

Strategy: Sell the June $42.50 strike or lower call for 60 cents over the intrinsic value and buy TOT. This is a dividend capture without the dividend. Because the dividend amount is much higher than the option premium, we expect to get exercised the day before TOT trades ex-dividend. The goal is to capture the 60 cents option premium, get exercised and move on with only three weeks risk exposure. I prefer to get exercised with ADRs because of potential tax issues.

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Leggett & Platt (LEG)

LEG designs and produces various engineered components and products. The company was founded in 1883.

Yield: 5.63%
Dividend Amount: 28 cents
Ex-Dividend Date: June 13, 2012
Beta: 1.16

Strategy: Buy LEG and offer to sell the June $20.00 strike or lower call for 45 cents over the intrinsic value.

In almost all cases, I sell the call option first to ensure the stock option leg is complete. If not, after qualifying for the dividend, I will look to close out the covered option with a gain of about 12 cents, plus the quarterly dividend paid by the company.

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.

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NYSE Euronext (NYX)

NYSE Euronext, through its subsidiaries, operates securities exchanges including NYSE. Yield: 4.88% Dividend Amount: 30 cents Ex-Dividend Date: June 13, 2012 Beta: 1.63

Strategy: Buy NYSE Euronext stock and offer to sell the June $25.00 strike or lower call for 59 cents over the intrinsic value.

The option may get exercised early for a gain. In almost all cases, I sell the call option first to ensure the stock option leg is complete. If not, after qualifying for the dividend, I will look to close out the covered option with a gain of about 21 cents, plus the quarterly dividend paid by the company.

If my shares are called away before trading ex-dividend (resulting from the option buyer wanting the dividend), I gain about 59 cents. The most I can make is 89 cents if I hold the covered call through option expiration day and the stock gets called away.

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.

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Coca-Cola (KO)

Coca-Cola, a beverage company, engages in the manufacture, marketing and sale of nonalcoholic beverages worldwide. The company was founded in 1886 and is headquartered in Atlanta, Ga.

Yield: 2.75%
Dividend Amount: 51 cents
Ex-Dividend Date: June 13, 2012
Beta: 0.52

Strategy: Buy Coca-Cola stock and offer to sell the June $72.50 strike or lower call for 51 cents over the intrinsic value.

In almost all cases, I sell the call option first to ensure the stock option leg is complete. If not, after qualifying for the dividend, I will attempt to close out the trade with a gain of near 21 cents, plus the dividend earned.

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 51 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 51 cents. The most I can make is $1.02 if I hold the covered call through option expiration day and the stock gets called away.

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.

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Hewlett-Packard Company (HPQ)

The company was founded in 1939 and is headquartered in Palo Alto, Calif.

Yield: 2.46%
Dividend Amount: 13 cents
Ex-Dividend Date: June 11, 2012
Beta: 1.09

Strategy: Buy Hewlett-Packard stock and offer to sell the June $20.00 strike or lower call for 31 cents over the intrinsic value.

I will attempt to close with a gain of near 9 cents, plus the dividend earned.

I don't want the dividend capture trade unless the option sale will provide at least the minimum 31 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 31 cents. The most I can make is 44 cents if I hold the covered call through option expiration day and the stock gets called away.

Author is long HPQ at the time of writing. No positions in any other stock mentioned.

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