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September 2012 Monthly Income Plan Update

As we approach the end of the September option expiration cycle, the Get Rich Monthly Income Plan had a great month for investors.

In January, we kicked off the perpetual covered call strategy. For those who are new to this concept, let me share the rationale of this income investment. This strategy was created to produce monthly income with stock dividends and covered call premium. In addition, there is a protective, blanket put, to ensure the volatility in the market does not affect your return of capital.

We will be adding one new perpetual covered call each month to keep fresh ideas on the table. We will follow the progress of the perpetual covered calls each month the year. I will email premium members with trading directions when an action is required. Here are some of the results for 2012:

Perpetual Covered Call Returns:

Stock 1 – Oil Company has an YTD total return of 153% including dividends and special dividends.

Stock 2 – Drug Store Company with an YTD total return of 68.1% including dividends.

Stock 3 – Technology Company with an YTD total return of 27.3% including dividends.

Year to date, the SPY (S&P 500) is up 16.1% and the Powershares S&P 500 Buy-Write (PBP) is up 8.16%.

We also provide a list of stocks for monthly covered calls. Here we change the list each month based on investing in the right stock for monthly income. For the September option cycle, this was a great month for our Monthly covered call trades.

We made monthly returns of:

7.83% on GME,

6.91% on LAD,

3.8% on COH, and

3.4% on PSX,

We have added the covered put trades as an additional way to sell premium and to enter stock positions. I frequently sell puts to enter a new stock position because (1) I get the stock at a lower price than it is trading at the market. (2) I get to produce income from the premium I receive when selling the puts. If the stock is above the put strike price at expiration, I keep the premium and have the opportunity to sell more outs or just purchase the stock cheaper because I have the put premium to cover partial costs. I have used this technique for several months on the same stock before I get the stock put to me. This creates enough income to really lower the total cost of the stock. Then, when the stock is put to me, I sell calls (covered) to earn more income until the stock is called away. Then – rinse and repeat.

For investors wanting to create monthly income, the Get Rich Monthly Income Plan is right for you. Click here to learn more.

Stocks with 30% Dividend Increases in Last Quarter

As the market uncertainty continues throughout 2012, investors are still seeking safety from income investments.  While a significant amount of money has moved into bonds, dividend stocks are still a great place to find income streams.  The boards of many companies are realizing this and responding by increasing their dividends.  You have many dividend growth companies that continue to increase their dividends at a high pace each year.  The following list includes companies that increased their dividend payments by 30% in the previous quarter.

Southwest Airlines (LUV) engages in the operation of a passenger airline that provides scheduled air transportation in the United States.  LUV increased its dividend from $0.045 to $0.10 for an increase of 122%.  LUV has a 5-year average dividend growth rate of 17.32%.  LUV has a dividend yield of 0.43% with a 5% payout ratio.  LUV is trading at $9.18 with a market cap of $7.12 billion.  LUV has an equity summary score of 7.1 out of 10 for a Bullish outlook.

KeyCorp (KEY) operates as a holding company for KeyBank National Association that provides various banking services in the United States.  KEY increased its dividend from $0.03 to $0.05 for an increase of 66%.  KEY is rebuilding its dividend since being cut in the financial crisis of 2008.  KEY has a dividend yield of 2.60% with a 13% payout ratio.  KEY is trading at $7.66 with a market cap of $7.34 billion.  KEY has an equity summary score of 4.4 out of 10 for a Neutral outlook.

Coach, Inc. (COH) designs and markets accessories and gifts for women and men in the United States and internationally.  It primarily offers handbags, women’s and men’s bag, accessories, business cases, footwear, wearables, jewelry, sunwear, travel bags, watches, and fragrance products.  COH increased its dividend from $0.225 to $0.30 for an increase of 33%.  COH has increased its dividend each year since initiating in 2009 for a total increase of 329%.  COH has a dividend yield of 2.08% with a 26% payout ratio.  COH is trading at $57.49 with a market cap of $16.5 billion.  COH has an equity summary score of 8.7 out of 10 for a Bullish outlook.

Barrick Gold Corporation (ABX) engages in the production and sale of gold and copper. The company has a portfolio of 26 operating mines, and exploration and development projects located in North America, South America, the Australia Pacific region, and Africa.  ABX is down 20% in the past year as the price of gold has declined.  ABX increased its dividend from $0.15 to $0.20 for an increase of 33%.  ABX has a 5-year average dividend growth rate of 21.7%.  ABX has a dividend yield of 2.17% with a 12% payout ratio.  ABX is trading at $36.36 with a market cap of $36.8 billion.  ABX has an equity summary score of 4.4 out of 10 for a Neutral outlook.

The Goldman Sachs Group, Inc. (GS) provides investment banking, securities, and investment management services, as well as a range of financial services to corporations, financial institutions, governments and high-net-worth individuals worldwide.  GS increased its dividend from $0.35 to $0.46 for an increase of 31.4%.  GS has a 5-year average dividend growth rate of 5.6%.  GS has a dividend yield of 1.93% with a 20% payout ratio.  GS is trading at $94.05 with a market cap of $46.96 billion.  GS has an equity summary score of 0.9 out of 10 for a VERY Bearish outlook.

Marriott International, Inc. (MAR) operates, franchises, and licenses hotels and corporate housing properties worldwide.  MAR increased its dividend from $0.10 to $0.13 for an increase of 30%.  MAR has a 5-year average dividend growth rate of 12%.  MAR has a dividend yield of 1.32% with a 68% payout ratio.  MAR is trading at $39.12 with a market cap of $13.0 billion.  MAR has an equity summary score of 8.5 out of 10 for a Bullish outlook.

UnitedHealth Group Incorporated (UNH) operates as a diversified health and well-being company in the United States.  UNH increased its dividend from $0.1625 to $0.2125 for an increase of 30.8%.  UNH has a 5-year average dividend growth rate of 95%.  UNH has a dividend yield of 1.52% with a 13% payout ratio.  UNH is trading at $55.70 with a market cap of $57.9 billion.  UNH has an equity summary score of 9.5 out of 10 for a VERY Bullish outlook.

Stocks Increasing Dividends to Buy Now

As the earnings season continues to look good, many dividend stalwarts are increasing their annual dividend payouts.  There are many companies increasing dividends but not all are stocks to buy.  I  used the equity summary score, a consensus of financial analysts at different firms, to determine that these stocks are rated Bullish or better.  For investors seeking dividend income, these stocks make great additions to your portfolio.

Coach (COH) dressed up shareholders with a 33% increase in its quarterly payout to 40 cents per share.  The new dividend will start being paid in July. The new dividend yield is 2.16%.  The luxury handbag, accessories and leather-goods maker has seen its profit grow for over two years on the strength of its North American direct-to-consumer businesses and global expansion. The company also is broadening its men’s business with more male-oriented products and by opening men’s stores in the U.S. and Japan.  COH has an equity summary score of 9.7 out of 10 for a Very Bullish outlook.

International Business Machines (IBM) reprogrammed its dividend with a 13% increase to 85 cents per share. The new payout will be coded on June 9 to shareholders of record as of May 10. The new dividend yield is 1.64%. This is the 17th straight year that IBM has increased its quarterly dividend, and the ninth year in a row of double-digit-percent increases.  IBM also authorized an additional$7 billion to buy back shares as the company looks to return more of its rising cash levels to shareholders.  IBM has an equity summary score of 9.7 out of 10 for a Very Bullish outlook.

Exxon Mobil (XOM) delivered a 21.2% boost in its quarterly dividend payment to 57 cents per share. The new payout will be made on June 11 to shareholders of record as of May 14. The new dividend yield is 2.65%. If Exxon Mobil’s CEO stays true to his word…and keeps the yield competitive, there should be further dividend increases before next year.  The company has increased its annual dividend every year for the past 30 years.  XOM has an equity summary score of 9.6 out of 10 for a Very Bullish outlook.

Chevron Corporation (CVX) engages in petroleum, chemicals, mining, power generation, and energy operations worldwide. It operates in two segments, Upstream and Downstream.  CVX unearthed an 11.1% increase in its quarterly dividend to 90 cents per share. The new dividend will start being paid in June.  The new dividend yield is 3.39%. CVX has a significant amount of cash in its balance sheet –$18.9 billion at the end of first quarter.  The company also announced it purchased $1.25 billion of its common stock in the first quarter 2012 under its share repurchase program.  CVX has an equity summary score of 9.4 out of 10 for a Very Bullish outlook.

Johnson & Johnson (JNJ) put a Band-Aid on its quarterly payout, increasing its dividend 7% to 61 cents per share. The new payout will be made on June 12 to shareholders of record as of May 29. The new dividend yield is 3.76%.  This is the 50th straight year the health-care products giant has decided to raise its payout to shareholders.  JNJ recently reported a higher first-quarter profit due to a foreign-exchange- related gain and lower expenses, though the currency impacts also weighed on sales.  JNJ has an equity summary score of 8.4 out of 10 for a Bullish outlook.

These Luxury Brand Stocks are Booming

Luxury brands continue to do well as the consumer rebounds.  These brands are finding new consumers in the international marketplace.  In addition, men are the new target for luxury brands as men seem to have developed an eye for fashion.  Both Tiffany (TIF) and Coach (COH) are listed in the top 50 brands in the U.S., as published by Interbrand in the “Best Retail Brands 2012.”  Both of these stocks are considered strong buys especially if we get a market pullback.

Tiffany & Co. (TIF) continues to flourish where many luxury goods have struggled. Store expansion continued in 2011 with the restraint and discipline befitting a luxury brand. The brand has been able to successfully offset rising commodity costs through increased merchandise pricing. Active in both product development and promotions, Tiffany’s successful multimedia campaign “What Makes Love True?” was recognized as a best-in-class example of a luxury retailer using digital. The company’s increasing focus on environmental and social leadership is a growing component of the brand; it is clear about its diamond supply chain partners and practices. The appeal of the iconic blue box is universal, as demonstrated by Tiffany’s continued international growth.

Globally, we believe the Tiffany & Co. brand is under-penetrated, presenting TIF with ample growth opportunities. Through selective retail and e-commerce expansion in the Americas, Europe and the Asia-Pacific, and new product introductions, we see net sales reaching $3.64 billion in FY 12 (Jan.) and $3.93 billion in FY 13. TIF reported a 7% increase in worldwide net sales for the November-December holiday period, below our 11% growth projection. On a
constant-currency basis, same-store sales rose 4%, reflecting gains of 2% in the Americas, 12% in the Asia-Pacific, and 6% in Japan, and a decline of 4% in
Europe. While sales have weakened markedly in Europe and in the eastern U.S. (particularly markets that have a high customer concentration tied to Wall
Street) in recent months, given our view of the company’s leadership in U.S. high-end jewelry retailing, its growing brand awareness and market penetration
in Continental Europe and the AsiaPacific, its improving operating efficiencies, and its compelling valuation, we think TIF remains an attractive long-term investment.  TIF has increased annual dividends each year since 2003 and has a current yield of 1.71% based on a 31% payout ratio.  TIF has a Dividend Growth 5 Year Average of 23.73%.

A consistently renowned American heritage brand of accessible and aspirational luxury with high positive social media scores, Coach (COH) has 500 stores in the U.S and Canada and enjoys an evergrowing presence globally, most recently entering Brazil and Vietnam. The company is experiencing tremendous growth in China due to the explosion of middle income families who aspire to higher-end brands. To protect its brand, Coach initiated a major crackdown on counterfeiters and trademark infringers. It also created a new brand, Reed Krakoff, to deliver a slightly different design aesthetic at a higher price point. All things related to the brand filter through Coach’s executive creative officer to keep brand focus sharp. The result is continued double-digit growth. In FY 11 (Jun.), COH estimated the U.S. addressable market for women’s accessories and handbags grew to 10%, to $9.3 billion as the company grew more rapidly, expanding its domestic market share. A re-emphasis on Coach Men’s also doubled the business to about $200 million, and a focus on expanding Asian distribution increased COH’s market share in China to 6%, or $185 million. We see favorable long-term sales and earnings prospects for COH, as much based on management’s acumen as on global brand potential.

While sales of $400+ handbags weakened in the December quarter, North American comparable-store sales rose a strong 8.8% on top of a year-ago 12.6% gain. We view the company’s core $198 and $298 price points, which we believe appeal to broad range of shoppers spanning the high-end to value, and frequent in-flow of new products as competitive advantages.  We also see a growing retail business in Asia and further development of Coach Men’s expanding COH’s global market opportunity.

In the five years through FY 11, COH posted a revenue compound annual growth rate (CAGR) of 15%, a gross profit CAGR of 14%, an EBIT CAGR of 13%, and an income from continuing operations CAGR of 14%. Total assets rose at a five-year CAGR of 10%. Capital expenditures were $148 million in FY 11, up from $80 million in FY 10, and for FY 12 COH estimates a $200 million capital budget, supporting global store expansion and investments in technology. COH’s returns on assets, capital and equity exhibited substantial improvement in FY 10, posting gains of 340 bps to 680 bps. FY 11 returns were 32% for ROA, 52% for ROC, and 57% for ROE, and were at the top of the peer group. We expect COH to maintain industry leading financial and operational metrics, and we regard the COH management team as excellent brand stewards that uphold strong operating disciplines, and we forecast incremental improvements in gross margin along with SG&A leverage on increasing scale over the long term. COH has increased annual dividends each year since beginning payments in 2009. COH has a current yield of 1.18% based on a 25% payout ratio.

Monthly Income Portfolio – July Update

July Results - Click to enlarge

In the past, we have been expressing the view the equity markets were oversold and a rebound was likely to occur at any time.  Last week’s oversized bounce was probably due to two factors, the parliamentary vote in Greece forestalling a near term default event and the end of QE2 with the resulting bubble in the Treasury market that began deflating.  For the time being rising interest rates are reflecting a return to the “risk-on” condition.

As we caught an upturn in the market, all of our positions are deep in profits. We have captured 90% or more of the total profits in most of our put positions. Even though we are 10 days from expiration of July options, we will take profits on all five positions today. This will give us a total of $3,992.50 profit in less than one month. This is a return of 3.99% on the starting balance of $100,000. These positions were initated on June 27 so we are only 6 trading days (8 total days) into the trade. This is an annualized return of 182% which is hard to beat in most portfolios. Here is the positions today before selling them (see July Results).

Since July options expire on July 16, we will add new positions for August expiration.  We closed all July put positions so we did not get any stock put to us.  The new positions are shown in the chart below (see new positions).  We will write more puts on Under Armour (UA), Cummings (CMI) and Coach (COH): all with new strike prices in August 2011.  We will add two new stocks with put writes: MetroPCS Communications (PCS) and Celgene (CELG).    This creates a total of $6,190 in premiums received from selling August puts from these new positions (see the breakdown by position in chart).   This is a return of 5.98% based on the portfolio value of $103, 579.37 shown in chart.   In addition we invested $3,978 of our profits in 650 shares of Alpine Total Dynamic Dividend Fund (AOD) which pays a monthly dividend and has a yield of 10.7%.  We will continue to invest profits in monthly dividend payers.

New Positions - Click to enlarge

Under Armour, Inc. (UA) is engaged in the development, marketing and distribution of branded performance apparel, footwear and accessories for men, women and youth. The Company’s products are sold worldwide and are worn by athletes at all levels, from youth to professional, on playing fields around the globe, as well as consumers with active lifestyles. Its products are offered in over 23,000 retail stores worldwide. Most of its products are sold in North America. The Company’s trademarks include UNDER ARMOUR, HEATGEAR, COLDGEAR, ALLSEASONGEAR and the Under Armour UA Logo. The Company’s product offerings consist of apparel, footwear and accessories for men, women and youth.
Cummins Inc. (CMI) designs, manufactures, distributes and services diesel and natural gas engines, electric power generation systems and engine-related component products, including filtration, exhaust aftertreatment, fuel systems, controls and air handling systems. The Company sells its products to original equipment manufacturers (OEMs), distributors and other customers worldwide. It has four segments: Engine, Power Generation, Components and Distribution. It serves its customers through a network of more than 600 company owned and independent distributor locations and more than 6,000 dealer locations in more than 190 countries and territories. In November 2010, it purchased a majority interest in a previously independent North American distributorship. On January 4, 2010, it acquired the 70% interest in Cummins Western Canada (CWC). In April 2011, the Company sold its exhaust business to Global Tube.
Coach, Inc. (COH) is a marketer of fine accessories and gifts for women and men. Coach’s product offerings include handbags, women’s and men’s accessories, footwear, business cases, jewelry, wearables, sunwear, travel bags, fragrance and watches. Coach operates in two business segments: Direct-to-Consumer and Indirect. During the fiscal year ended July 3, 2010, the Company introduced Poppy, which offers a variety of silhouettes. It also introduced additional lifestyle collections. The accessories include women’s and men’s small leather goods, novelty accessories and women’s and men’s belts. The Company’s footwear is distributed through select Coach retail stores, and over 950 United States department stores. The wearables category consists of jackets, sweaters, gloves, hats and scarves, including both cold weather and fashion. During fiscal 2010, Estee Lauder Companies Inc., through its subsidiary, Aramis Inc., became Coach’s fragrance licensee.
MetroPCS Communications, Inc. (PCS) is a wireless telecommunications provider in the United States measured by the number of subscribers served. The Company offers wireless broadband mobile services under the MetroPCS brand in selected metropolitan areas in the United States. The Company provides a variety of wireless communications services to its subscribers on a no long-term contract, paid-in-advance basis. As of December 31, 2010, the Company had approximately 8.1 million subscribers. Its products and services include voice services, data services, custom calling features and advanced handsets. At December 31, 2010, the Company had thirteen operating segments based on geographic regions within the United States: Atlanta, Boston, Dallas/Ft. Worth, Detroit, Las Vegas, Los Angeles, Miami, New York, Orlando/Jacksonville, Philadelphia, Sacramento, San Francisco and Tampa/Sarasota.
Celgene Corporation (CELG) is a global integrated biopharmaceutical company. The Company is primarily engaged in the discovery, development and commercialization of therapies designed to treat cancer and immune-inflammatory related diseases, such as immunomodulation and intracellular signaling pathways in hematology, oncology and immune-inflammatory diseases. Its primary commercial-stage products include REVLIMID, VIDAZA, THALOMID (inclusive of Thalidomide Celgene and Thalidomide Pharmion), ABRAXANE and ISTODAX. Other sources of revenue include sales of FOCALIN to Novartis Pharma AG (Novartis), which is a licensing agreement with Novartis, which entitles it to royalties on FOCALIN XR and the entire RITALIN family of drugs. On January 15, 2010, it acquired Gloucester Pharmaceuticals, Inc. (Gloucester), which is a privately held pharmaceutical company. On October 15, 2010, the Company acquired Abraxis BioScience, Inc. (Abraxis).
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