dividend increase Raising Dividends

The stock market usually reacts positively to a company raising its dividend. That kind of corporate action normally shows that the company is profitable, with good cash flows, and has confidence about a bright future. For some companies, raising dividends is a habit; they do it every year. They are called the Dividend Champions.

Dividend Champion is a name given to companies that have increased their dividends for 25 years in a row or more.

Because of their well established history of raising dividends each year, it is likely the dividend champions will continue to do so. If you could predict when they would next raise their dividends, you could buy some shares and write covered calls in advance of that positive news.

20 Companies About To Raise Dividends

David Fish of Moneypaper wrote today These 20 Dividend Champions Could Soon Hike Their Payouts. He points out that the majority of champions have a habit of announcing dividend increases about the same time each year. Normally the announcements come between 2-60 days before the ex-dividend date. He claims that 90% of the time these dividend increases can be predicted.

David identified 20 companies that are within the window of "about to increase their dividend" based on past behavior and last year's dates. 18 of the 20 have options available, which are:

Dividend champions about to increase their dividends Feb 2015

(column headings: No. Years = number of consecutive years of higher dividends, MR = Most Recent, DGR = Dividend Growth Rate)

Covered Calls For Next 2 Weeks

If you take those 18 symbols and plug them into Born To Sell's Watchlist feature, you find 5 candidates (ADM, ED, KO, TROW, WMT) for short-term January covered calls (the monthly Jan 17 expiration) that yield 1%/month or more on an annualized basis (i.e. their Annual Return If Flat is >= 12%):

Dividend champions covered calls for Jan 17, 2015 expiration

If we use the weekly options and go out 1 more week to the Jan 23 expiration then we find 3 stocks (ADM, KO, WMT) with multiple strike prices that offer annualized rates of return greater than 1%/month:

Dividend champions covered calls for Jan 23, 2015 expiration

None of those have an earnings announcement prior to the Jan 23 option expiration date, so that removes at least one type of risk. If the companies have not announced a dividend increase by Jan 23 then you could roll to the Feb 20 expiration while you wait (although several of them do have an earnings announcement before the Feb 20 expiration so be aware of that).

Note: These are not trade recommendations. These are candidate trades with likely dividend increases coming. Do your own research, keep position sizes modest, and stay diversified.

Mike Scanlin is the founder of Born To Sell and has been writing covered calls for a long time.

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