Bookmark and Share 27, Volatile Market Dividend Stocks

TheStreet.com wrote an article today about Top Dividend Stocks To Buy When The Market Is Volatile. Can't fault their logic -- dividend stocks offer relative stability in a volatile market, and looking for companies that consistently grow earnings to fund annual dividend increases is a reasonable strategy. (Note: Raising cash during a volatile market is also a reasonable strategy, but that's a topic for another day.)

4 Dividend Stocks For A Volatile Market

The four dividend companies chosen by TheStreet.com are: COP (4.7% dividend yield), GE (3.6%), HP (4%), and CPB (2.8%). You can read the original article to find out their reasons for choosing these stocks. What's important for us here is, how can we increase the yields (and reduce risk) even more by using covered calls?

Covered Calls On Dividend Stocks

If we enter those 4 symbols into our Watchlist feature and set the expiration date to April 17 (next monthly expiration) we find that all 4 offer greater than 2%/month return (i.e. annualized returns are more than 24%):

Volatile Market Dividend Stocks For Apr 17

However, there are a couple of things to be aware of. First, COP is in the oil patch, which is subject to the price of oil. Second, GE has earnings on Apr 17 before the market opens, same day as option expiration. Third, if you invest in CPB then check if your option has any time premium remaining on Apr 8 (day before ex-dividend date). If not, you risk early exercise and may want to roll to a later expiration date if you want to be sure to get the dividend. On the other hand, you would still do well if exercised (since your net debit for the buy-write is 45.13 and you'd be called away at 46; you'd still make 87 cents per share in about 12 days, even without the dividend -- 58% annualized return).

As always, these are not recommendations. They are starting points for your own due diligence. Keep positions small. Stay diversified. Don't invest just because of the dividend and covered call income potential. You should be comfortable holding the stock beyond the expiration date because, especially with at-the-money options like the ones listed above, your option may not be exercised.

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