WHAT WE DO? WE SELL OPTIONS FOR INCOME. WE USE THAT INCOME TO BUY DIVIDEND GROWTH STOCKS!
CHECK OUR TRADES ON OUR FACEBOOK PAGE OR HERE.


New Trade – Pitney Bowes Inc. (PBI) put selling

When I sold ARR today morning I quickly scanned my watch list for replacement. I must admit that this time I was looking for high yielding stocks, closer to 10% yield with a decent dividend growth and dividend paying history.

I think Pitney Bowes Inc. perfectly fits my needs. It is a long-term dividend payer. It has been paying dividends since 1934. The company has increased dividend for 30 consecutive years. It’s current yield is at 10.20% and the dividend growth is at 2.29% which is decent. Well, compared to ARR it is perfect.

Here is the dividend history of Pitney:

PBI
(click to enlarge)

Although I liked what I could see about PBI, I didn’t like the price action of the stock. It is running up. As my friend says, the train already has left the station.

If you read my blog regularly, you may have noticed that I do not like chasing stocks and buying at retail prices. Pitney is now selling at retail prices.

See the chart:

PBI

So I would like to wait for a retreat, wait for the stock to reverse and drop in price before it shoots again up. Therefore I decided to open an option trade – put selling for this stock.

I sold 1 contract and keep the rest of the cash in reserves for another trade.

TRADE DETAIL

03/13/2013 13:51:19 Sold 1 PBI Jul 20 2013 14.0 Put @ 0.85

I am willing to wait for this stock and get exercised if it drops below 14 a share by July 20. In that case my cost basis will be $13.15 a share. If the stock stays above $14 a share, the option expires worthless and I will repeat the process.

WHAT ABOUT DIVIDENDS WHILE WAITING?

I wanted to see whether it makes sense selling put option or rather buy the stock outright. Will I lose dividends between the time?

Pitney pays dividends quarterly. Its quarterly dividend is at $0.375 a share. Their dividend calendar for the years starts in May 9 (ex-dividend). So I would miss one payment. If I buy 100 shares of PBI now, I would receive $37.5 in dividends. Selling the option contract I received $85 in total ($76.22 after commissions and if I get assigned it will be $57.22, so still above the dividend payout).

How do you buy stocks to your portfolio? Do you use options only, mix of options and direct buys or do you buy stocks directly only?





2 responses to “New Trade – Pitney Bowes Inc. (PBI) put selling”

  1. Martin says:

    MFI, Pitney has its core business in a highly regulated postal services. It is very unlikely or almost impossible for competitors to enter this business. Pitney has monopoly for this services and these generated 800 million cash flow in 2012. true, in 2011 it was 1.05 billion cash flow, so it is a sizable decline and the company needs to go thru restructuralization. But the market is pretty much secured due to lack of competitors. If the economy picks up again, I believe PBI will get better as direct-mail marketing picks up again. It also operates in other segment of business communication and software solutions. My bet is that the company will be able to transform itself successfully along with its monopoly it will come out strong. Now everybody is skeptical, which I take as an opportunity. The company has been around since 1920 and survived radio, telegraph and TV inventions, so I believe it will survive new technology too. Of course I may be wrong, but as long as the company pays the dividend and increases it, it is a sign for me that everything is still OK. I will be concerned when the cut or lack of increase shows up…

  2. Personally, I wouldn’t own PBI as a company, so I wouldn’t sell puts against it. I don’t see mail services as going anywhere but down in the future.