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High Yield Stocks
A popular screen for high yield stocks involves taking the Dow 30 industrial stocks, finding those with the highest dividend yield, and then sorting by P/E ratio. The idea is that by choosing high yield, low P/E, DJIA stocks you will be buying undervalued quality stocks. Then you can write covered calls against them.
DJIA High Yield Stocks
The top 16 highest yielding Dow 30 stocks today are:
| Company | Symbol | Dividend Yield |
|---|---|---|
| AT&T | T | 5.8% |
| Verizon | VZ | 5.1% |
| Merck | MRK | 4.4% |
| Pfizer | PFE | 3.7% |
| General Electric | GE | 3.7% |
| Johnson & Johnson | JNJ | 3.5% |
| Dupont | DD | 3.5% |
| Intel | INTC | 3.3% |
| Procter & Gamble | PG | 3.1% |
| Kraft Foods | KFT | 3.1% |
| Chevron | CVX | 2.9% |
| Microsoft | MSFT | 2.9% |
| Travelers | TVR | 2.8% |
| McDonalds | MCD | 2.8% |
| Coca-Cola | KO | 2.7% |
| Wal-Mart | WMT | 2.4% |
DJIA Low P/E Stocks
If we take that high yield list and find the 8 stocks with the lowest P/E ratios, we get:
| Company | Symbol | Dividend Yield | P/E Ratio |
|---|---|---|---|
| Chevron | CVX | 2.9% | 8 |
| Microsoft | MSFT | 2.9% | 10 |
| Intel | INTC | 3.3% | 11 |
| Dupont | DD | 3.5% | 13 |
| Coca-Cola | KO | 2.7% | 13 |
| Wal-Mart | WMT | 2.4% | 13 |
| General Electric | GE | 3.7% | 14 |
| Pfizer | PFE | 3.7% | 15 |
High Yield, Low P/E Stocks With Covered Calls
Now, let's run these high yield, low P/E, Dow Industrial stocks through Born To Sell's covered call screener to find some buy-write candidates for the January 21 expiration (2 weeks from today). Note: to reduce risk, we have removed any that have an earnings announcement before January 21:
| Symbol | Stock Ask |
Call Strike |
Net Debit |
Downside Protection |
Annualized Return If Flat |
|---|---|---|---|---|---|
| DD | 46.17 | 45 | 44.63 | 3.3% | 19.5% |
| CVX | 108.44 | 105 | 104.29 | 3.8% | 17.0% |
Only two matches if we limit results to those with annualized rates of return > 15%. Still, these appear to be relatively safe places to park some cash for the next 2 weeks. Should they drop below the strike price on expiration day you will still own them and can write another call at the same strike for the February cycle.
Mike Scanlin is the founder of Born To Sell and has been writing covered calls for a long time.