Get Rich - Stay Rich - Investing for Monthly Income

How to Get Started With Writing Calls

How do you get started with trading covered calls?  Once you understand the principles of writing options, you must determine what stock to purchase for this trade.  The simplest method is to start with a list of stocks.  I suggest the S&P Dividend Aristocrats list.   Since this trade requires buying stock, why not get paid a dividend in addition to the call premium.  This is more effective when you continue to write calls on the stock month after month until you are assigned.  This gives you a second dividend income to increase your monthly income stream.

The S&P 500 Dividend Aristocrats is currently a list of 42 companies that have increased dividends (not just remained the same) for 25 years straight.  Keep in mind just because they are on this list now, doesn’t mean in the future they will be forced to reduce their dividend.  Unfortunately during our last recession in 2008 many investors found out their dividend was cut on their once stable stock.  For example, Pfizer Inc. (PFE) and General Electric Company (GE) both cut their dividend, and were removed from the Dividend Aristocrat list in 2009.  In 2009 a total of 10 companies were removed from the list.  As you can see from the list of stocks, these aren’t exactly a list of highflying tech stocks like Apple (AAPL) or Google (GOOG). In fact most people consider these stocks boring, but boring is sometimes better.

The list below shows the stocks included in the Dividend Aristocrats list for 2011.  You should start looking at the company’s with a 4 or 5 star rating by Standard & Poors.  You can find a level of ease when a stock is rated a strong buy or buy by S&P.  There are 5 stocks rated strong buy on the list: XOM, WMT, KO, PPG, and VFC.

Company Name Symbol Price PE Yield % SP Rating SP Recommend
Exxon Mobil Corp XOM         85.22 12.1 2.2 5 Strong Buy
Wal-Mart Stores WMT         54.52 12.7 2.7 5 Strong Buy
Coca-Cola Co KO         69.73 13.0 2.7 5 Strong Buy
PPG Industries Inc PPG         88.94 14.0 2.6 5 Strong Buy
VF Corp VFC       120.50 21.1 2.1 5 Strong Buy
Chubb Corp CB         64.45 9.1 2.4 4 Buy
AFLAC Inc AFL         46.21 10.4 2.6 4 Buy
Target Corp TGT         51.81 12.6 2.3 4 Buy
Abbott Laboratories ABT         52.95 12.7 3.6 4 Buy
Dover Corp DOV         66.84 15.0 1.7 4 Buy
Walgreen Co WAG         40.02 15.6 2.3 4 Buy
Johnson & Johnson JNJ         66.72 16.0 3.4 4 Buy
PepsiCo Inc PEP         65.76 16.7 3.1 4 Buy
Becton, Dickinson & Co BDX         87.16 16.8 1.9 4 Buy
Grainger, W.W. Inc GWW       155.45 18.5 1.7 4 Buy
Brown-Forman Corp B BF/B         75.96 19.5 1.7 4 Buy
Stanley Black & Decker SWK         70.10 19.5 2.3 4 Buy
Leggett & Platt LEG         23.50 20.3 4.6 4 Buy
Cintas Corp CTAS         34.37 20.5 1.4 4 Buy
Automatic Data Processing ADP         53.23 21.7 2.7 4 Buy
Sigma-Aldrich Corp SIAL         73.53 22.4 1.0 4 Buy
Archer-Daniels-Midland Co ADM         32.12 10.0 2.0 3 Hold
Cincinnati Financial Corp CINF         28.40 12.5 5.6 3 Hold
CenturyLink Inc CTL         38.66 13.0 7.5 3 Hold
Consolidated Edison Inc ED         53.58 14.4 4.5 3 Hold
Pitney Bowes Inc PBI         22.41 14.6 6.0 3 Hold
Kimberly-Clark KMB         67.90 15.4 4.1 3 Hold
Lowe’s Cos Inc LOW         22.62 15.9 2.5 3 Hold
3M Co MMM         95.38 16.4 2.3 3 Hold
Bemis Co Inc BMS         33.95 16.7 2.8 3 Hold
Procter & Gamble PG         64.25 16.9 3.3 3 Hold
Air Products & Chemicals Inc APD         91.90 17.2 2.5 3 Hold
McCormick & Co MKC         50.25 17.5 2.2 3 Hold
Family Dollar Stores Inc FDO         54.14 17.9 1.3 3 Hold
McDonald’s Corp MCD         88.56 17.9 2.8 3 Hold
Emerson Electric Co EMR         55.10 19.2 2.5 3 Hold
Ecolab Inc ECL         53.05 23.8 1.3 3 Hold
Bard, C.R. Inc BCR         99.28 26.9 0.8 3 Hold
Clorox Co CLX         74.36 39.4 3.2 3 Hold
Hormel Foods Corp HRL         30.29 17.7 1.7 2 Sell
Sherwin-Williams Co SHW         79.64 17.4 1.8 1 Strong Sell
McGraw-Hill Cos Inc MHP         43.92 16.1 2.3 NA NA

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