3 Dividend Plays: Coca-Cola, CSX, McDonald's
There are few things Wall Street hates more than uncertainty; the only certainty coming from leaders is two scoops of more uncertainty. While many investors are full of gloom and doom, keep in mind the market travels in circles.
The circle includes both good and bad economic times. Right about the time the media is fully bullish, we start rounding the corner in the other direction like a pendulum on a clock. Round and round we go.
While many investors struggle to keep up with the direction of the market you can get a jump on it. Finding stocks you're willing to hold for long-term value, but positioned to provide short-term gains may give you a market edge in a tough market environment.
We can examine a few solid names that will trade ex-dividend soon. Selling covered call options as a hedge, we collect a quick return or hold for an expected greater return. I call this method dividend capturing, and it's one of the few strong edges a retail trader enjoys currently.
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 amount needed over intrinsic value.
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.
Background: McDonalds is the leading global foodservice retailer with more than 33,500 local restaurants serving approximately 69 million people in 119 countries each day. More than 80% of McDonalds restaurants worldwide are owned and operated by independents .
Dividend Amount: 77 cents
Ex-Dividend Date: Nov. 29
Strategy: Buy McDonalds stock and offer to sell the December $82.50 strike or lower call for 55 cents over the intrinsic value. I will attempt to close out the trade with a gain of near 43 cents, plus dividend.
If my shares are called away before trading ex-dividend (resulting from the option buyer wanting the dividend), I gain about 55 cents. The most I can make is $1.32 if I hold the covered call through option expiration day and the stock gets called away. I expect the shares to get called away as long as the option remains in the money.
Background: Coca-Cola, a beverage company, engages in the manufacture, marketing and sale of nonalcoholic beverages worldwide. The company primarily offers sparkling beverages and still beverages.