Rebuilding the portfolio for passive income in excess of budget.

music selection:  “Living Lovin Maid (She’s Just A Woman)” — Led Zeppelin

weigh-in:  198.2 (0.8)

I was savaged by recent volatility and had to retrench to avoid margin calls from my broker.  Today’s covered call trades bring my expected 12 month forward dividend, distribution, and interest income back to 107.24% of budget.

On Friday, I bought Altria Group (MO) for 44.28 a share.  With an underlying distribution of 3.20 a year, that is a plump 7.23%.  MO is a dividend grower so if shares decline further, this only gets tastier.  I’d go back for more if that happened.  To boost returns, I sold a covered call (MO190222C00045000) for 1.09 per share.  The trade will be in force for 29 days and yields an expected 30.49% on an annualized basis.  If shares are to be called away on the 22nd, there will be additional short term capital gains bringing the yield to 50.62%.  Shares are currently in the money.

Today, I bought shares of Macquarie Infrastructure (MIC) for 41.49 a share.  The underlying distribution of 4.00 per year results in a 9.64% yield (nice@!)  MIC is a cash flow machine that owns and operates hard to replace infrastructure assets at ports and airports.  Their moat is wide.  I boosted my yield further by selling MIC190215C00042500 for 40 cents a share.  The trade will be in force for 19 days and yields an expected 18.08% on an annualized basis.  Were shares to be called away on the 15th, additional short term capital gains would be realized.  This would result in the annualized gain leaping to 63.73%.

Finally, I bought shares of Blackstone (BX) at 33.07 today.  Shares yield 7.74% annually at that price.  BX is a best in class private equity company with a strong track record of returning near 20% on a consistent basis for accredited investors who agree to lock up capital for 7 years or longer.  I’ve bet on them before and the timing was bad.  At today’s price, the company offers really strong value.  I boosted returns by selling BX190308C00034000 for 55 cents a share.  The trade will be in force for 40 days and yields an expected 14.76% on an annualized basis.  This is more than “enough” to be paid to wait to potentially collect another 7.74%.  But it gets better because if shares are called away, the annualized yield jumps to 39.72%.  I can stay retired on that kind of return.

Devour your prey raptors!

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Covered Calls MO, MIC, BX up to 63.73% annualized return

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2 thoughts on “Covered Calls MO, MIC, BX up to 63.73% annualized return

  • January 29, 2019 at 4:18 pm
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    Sounds like you’ll be happy in either an up or a zigzag market. In the event of a bear market, at least MO and MIC seem like defensive positions where you could hold through the downturn and still probably get paid more than your withdraw rate to wait.

    BX is the outlier – seems to me that if junk bonds are in danger, then so would be Blackstone and BDCs like Apollo.

    Reply
    • January 29, 2019 at 9:39 pm
      Permalink

      You hit the nail on the head. I want to be positioned for up and sideways while layering in more defense as the bull market runs longer and longer. I’d also like to raise cash (mostly but cutting backs spending) for dry powder when junk bonds go on fire sale.

      Reply

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