September Covered Calls Trades On 4 Dividend Stocks

Small and large dividend stock and ETF investors can use covered calls and puts trades to generate monthly income from options premiums and options trading.

By Donald E. L. Johnson

Cautious Speculator

• The four covered call trades that expire during September 2023 so far include DHI, KR, PG and SO.

• I decided to wait for better options prices on CG and KMB.

• This post explains how I analyzed the trades.

• Watch the comments section for reports on additional covered calls trades.

After having covered calls trades expire Friday, I spent today rolling four of those covered calls forward into September.

Before I traded, I looked at what the analysts think about my stocks. I posted my notes in comments section of my last covered calls update.

8.21.23. This week I need to roll covers calls on CG, DOW, DVN, KMB, KR, NEM, PG, QQQ, SJM and XOM.

Conagra (CAG ) $30.19. Analysts' rating 3.67, moderate buy. High target $42, Mean $38.18, Low $35.

Carlyle (CG) $29.62. Target price at JPMorgan is $52. It is an 8% sell on Barchart.com.

Campbell Soup (CPB) $42.83. Hold. Analysts 2.42. H TP $53, M $48.83. L $44.

D.H. Horton (DHI) $117.31. Moderate Buy. 3.94. H $167. M $144.19. L $98.

Danaher (DHR) $251.41. Strong Buy. 4.58. H $325. M $288.33. L $240.

Dow Inc. (DOW) $54.02. Hold. 3.19. H $66. M $54.94. L $47.

Devon Energy (DVN) $49.99. Moderate Buy. 4.14. H $77. M $60.67. L $50.

Kimberly-Clark (KMB) $128.24. Hold. 2.83. H $153. M $136.91. L $125.

Kroger Co. (KR) $47.57. Moderate Buy. 4. H $65. M $52.50. L $42.

Merck & Co. (MRK) $109.20. Strong Buy. 4.53. H $135. M $124.95. L $113.

Newmont Mining (NEM) $38.20. Moderate Buy. 4.31. H $68.08. M $56.87. L $39.

Pfizer (PFE) $36.66. Moderate Buy. 3.81. H $75. M $47. L $38.

Proctor & Gamble (PG) $151.45. Moderate Buy. 4.33. H $180. M $169.35. L $155.

J.M. Sucker (SJM) $142.05. Hold. 2.67. H $170. M $151.73. L $125.

Southern Co. (SO) $67.81. Moderate Buy. H $80. M $73.69. L $67.

Exxon Mobil (XOM) $110.04. Moderate Buy. H $145. M $125.41. L $107.

Click on the image and zoom in for a better view of the data.

Then, as I did the four covered calls trades or decided to wait for a rally to do two other trades, I posted these comments starting with KMB:

8.21.23. KMB $127.70, down $0.54. Cost $142.85 on 5.13.23. Collected $1.18 per share dividend on 6.8.23. After also collecting covered calls premiums the net debit is $139.62. If collect $1.18 dividend four times in next year, or $4.72, the net debit would be $134.90. That would not include any covered calls premiums collected during the year.

KMB goes ex dividend 9.7.23 for $1.18. I can wait to collect that dividend and then sell covered calls at whatever I can get then. Or I can sell KMB 9.15.23 $132 strike calls (Delta .12, OTM 88.64%), for about $0.20, or about a 5% annual rate of return (ARoR). The stock has to bounce 3.3% to get to $132. I'm not sure I want to risk having the stock called for $0.20 and miss the dividend and a chance to break even in a year after collecting dividends and future call premiums. So I think I'll wait for a bounce in KMB before selling calls. The risk is that it will sink to $125 or lower in this market.

8.21.23. KR $47.29. Cost $48.99. Net debit is $46.43 after collecting call premiums and one $0.29 per share dividend.

Sold KR 9.15.23 (25 days) $49 strike calls for $0.83/share. ARoR about 24.7% after commissions. New net debit is $45.31. If I collect four dividends over the next year the net debit will be about $44.15. If I collect $0.83/share in calls options premiums 12 times over the next year, the net debit will be $34.19, give or take.

8.21.23. PG $151.42. Cost $151.70. Net debit $147.38.

Sold PG 9.15.23 (25 days) $155 covered calls for $1.06 per share. Rate of return (RoR) is 0.70%. Doing a similar 15 trades a year yields a 10.2% ARoR plus a 2.572% dividend yield annualized. Annual dividend is $0.9407 times 4 = $3.763 per share. New net debit is $146.32. If I collect the $3.763 in dividends over the next year the net debit will be $146.32-3.763 = $142.557 per share. If I can collect 15 covered calls at $1.06 per trade on similar trades on any stock or ETF over the next 12 months, the net debit will go to $142.567-$15.90 =$126.667 net debit.

8.21.23 CG $29.17 down $0.45. Cost $35. Net debit after call premiums and dividends collected since last year is $30.21. With the $30 strike delta at .38, there is a 38% chance of having CG called on 9.15.23. Even in what appears to be a down market, I don't want to risk having to sell CG at about a $29.31 when target prices are much higher. So I'll wait to see what I can get for the calls in a few weeks. Meanwhile, the dividend yield on the current net debit is about 4.63% in an IRA.

8.21.23 DHI $115.50. DHI was put to me last week at $120 - $1.05 puts premium, or $118.95 net debit.

Sold DHI 9.15.23 (25 days, 15 trades a year) $120 strike puts for $1.60 a share. RoR is 1.33%, or if same trade results were realized 15 times a year, the ARoR would be about 19.47%. Ex-dividend about 11.4.23. $1 annual dividend yield on $117.35 net debit is about 0.852% in an IRA.

8.21.23. SO $67.44. Cost $71. Net debit after collecting puts and calls premiums and a $0.70 dividend is $68.26. After I collect another four dividends, or $2.80 a share, the net debit will be $68.26-$2.80, or $65.46. The yield on the net debit will be about 4.28%. The current dividend yield is 4.14%. I am not getting my ask price on SO 9.15.23 $71 strike covered calls. So I'll wait to get the price I want. The risk is that SO will sink some more and I won't get much at this strike and may have to sell calls at a lower strike later on.

NowI am trying to sell the SO 9.15.23 $70 calls for about $0.40, or about a 9% ARoR. That would put the net debit at about $67.86. The bid just fell to .35 bid, .40 ask.

After waiting a few minutes, I got $0.40. with SO at $67.70. RoR on the 25 day trade is 0.56. If I got the same results 15 times a year the AROR would be about 8.23%. Including the dividend, the ARoR would be about 12.35%. Delta .24, OTM 78%, IV 18.2%. Net Debit $67.86. This is in an IRA.

These are the momentum indicators for the stocks discussed above.

This table shows how the stocks performed during the last 52 weeks.

All six stocks pay dividends.

Tomorrow I will do some more covered calls trades and report on them in the comments section below.

Between my portfolio updates, I report my thoughts and trades in the comments section of this and other posts.

I respond to comments on the comments section where readers’ comments are posted. That is, if you have a question about this article or other comments, I'll discuss your questions with you in the comments section below this article.

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Beware. Like all investing, trading stocks and options is risky. I’m an active private speculator who trades covered calls and sells puts on stocks for my accounts. I am not a professional analyst nor a financial advisor. I don't take and won't take responsibility for how other people trade. This article is for educational purposes only. It is not advice. The data presented looked accurate at publication time except for intra-day fluctuations, but I can’t guarantee the accuracy. Traders should do their due diligence. I reserve the right to trade any of the listed stocks and options at any time. I receive no compensation for producing this content nor for any links.