High Dividend Yield Shares

During the first 2 parts of this series, we used the following selection criteria:

1. High dividend yield - more than 5% (The S & P 500 average dividend yield is about 3.42%).

2. Moderate Dividend Payout Ratio - Less than 50% (The S & P dividend payout ratio is approximately 59%).

3.Less 40% above 52-Week Low *

4. Options

5. Ratio: More than 1.5

6. Long-term debt to equity: Under 5

As the market continues to rally, it gets harder to find good shares still near their lowest level, so I adjusted screen # 3: More than 50% below 52 weeks "high.

This screen identified adjusted Olin Corp. (OLN), a database Materials-Synthetics/Diversified Chemicals Company, which has 2 divisions, Specialty Chemicals chlor-alkali and ammunition for sports and the military.

Olin has a current dividend yield of sound just under 6% and payout ratio below 37% is very low for a stock dividend rate. Olin debt-equity ratios are strong and identical for both long term and short-term debt: a mere 33%.

The current ratio is about 1.9, which means that their current assets are almost two times higher than their commitments.

OLN is also cheap by other indicators:

Growth: The PEG ratio is 57 (no less than 1 is considered a good value)

Price / Book (P / B): only 1.40

Price / earnings (P / E): 6.17

Their management settings are solid:

Return on Equity (ROE): over 22%

Return On Investment (ROI): 12.24%

Return on assets (ROA) 9.67%, not a very high figure, but still respectable.

Within their peer group Diversified Chemicals, they have the highest dividend yield and the lowest P / E.

Since OLN is a stock option, you can also goose their high dividend yields by selling covered call options. Currently, on January $ 15 covered calls offer is $ 1.10.

We based the example on the following commercial purchase 100 shares of OLN, since option contracts are linked to 100 shares of underlying. (We all annualized returns in this article because the options expire in less than 12 months, and at different times. Annualization gives a better basis for comparing investments).

Here are the current figures for this high return, low risk business:

1. Buy 100 shares at $ 13.38

2. Sell January 1, 2010 Contract Appeals $ 15, (symbol YSOAC), to $ 1.10, to $ 110.00

3. Collect dividend payments 2, with a total value of $ .40/share, before the expiration option for $ 40.00

When January 16th, 2010 Expiry date arrives, there are 2 possible outcomes:

1. Surrender - If OLN stands at $ 16.10 or past, your 100 shares will be sold / assigned to the exercise price of $ 15.00, giving you an additional profit $ 1.62/share ($ 15.00 - 13 , $ 38 cost / share)

OR

2. Static - If OLN does not rise past $ 16.10 or you keep 100 shares. Your new cost cost is $ 11.88 ($ 13.38 - $ 1.10 premium - $ .40 dividend).

Annualized returns on this trade are:

Dividend yield: 4.92% ($ .40/share)

Call Return: 13.52% ($ 1.10/share)

Total Static Yield: (Toll + dividends): 18.84%

Yield potential affected: 19.9% ($ 1.62/share)

Potential Total Return: 38.74%

Breakeven Price: $ 11.88

Assignment Trigger Price: $ 16.10

The minimum income / static performance that you will by buying OLN and make this trade covered call is $ 150/100 shares (18.84%).

The maximum income you make is $ 312/100 shares (38.74%).

Your downside protection is equal to your static yield 18.84%.

In addition significantly increase your return on income, sales calls also covered:

-Determine exactly what your minimum income on each transaction will

Quantities, your maximum profit potential. Selling a call determines your exit strategy, because it forces you to sell at that strike price, no matter how high the.