I was assigned shares of DCP Midstream Partners LP (DPM) from puts that expired in the money on Saturday.
music selection: “No More Lies” Iron Maiden
Yesterday’s trade was to sell covered calls on DPM to continue the stream of income flowing in. This is a pure income play, not a growth play so the call is written at the money to maximize current income. On Tuesday, I sold DPM151120C00030000 for 53 cents. The trade will be open for 32 days and yields 20.15% annualized. There will be no capital gains if shares are called away. However, there should be a dividend of 78 cents in early November. If shares are not called away prematurely, that is a bonus 29.66% annualized yield (.78 / 30 / 32 * 365 = .2966). If shares are called away early, the annualized yield will rise.
When shares fell below the strike price last month, I felt they offered such a great value I doubled down with more puts at the 25 strike. Both trades are still open (covered calls at 30 and cash secured puts at 25). Both trades expire 20NOV2015. Shares presumably fell in sympathy with the rest of the oilfield on weak oil pricing. This is unfair punishment to DPM which derives its revenue primarily from midstream assets in natural gas and ‘drip.’ They are largely insulated from commodity price pressures as they are using more of a toll road business model. I will display a wide grin if shares get beaten up again – opportunity!
I’ll beat the 4% rule drum some more today. Saving 25 times annual expenses to retire is overkill in the extreme. An income centric portfolio with healthy allocations to high yield stocks, bonds in closed end funds, and cash used to secure put writing can consistently yield cash return far in excess of 4 with greater safety as you will experience no pressure to sell shares. My current withdrawal rate is 8.87% (assuming yesterday’s closing prices) and the portfolio kicks off income in excess of that allowing it to grow and stay ahead of inflation. Why work longer than necessary?
Devour your prey raptors!