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June 17, 2011
Edited: June 17, 2011
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I know this site relates more to swing traders and stock picker strategies. Our position relates to capital preservation with slow but steady income growth.
I don't know if site participants are reading our blogs. However, it doesn't really matter to me if they are or not. Writing my moves and thoughts is more important as it benefits or helps me, kind of like a public diary. It requires me, by it's very nature, to think out my processes. Also writing these down provides a history which I can refer back to see if certain trades or ideas worked out or not.
Today we decided to lower our stock positions by closing out a good stock.
I closed out Johnson & Johnson (JNJ). There are three reasons.
We played the game of getting the dividend just prior to ex-dividend date.
JNJ was purchased on May 24 at 65.86 and went ex-div on May 26. The dividend of $51.00 was paid on June 14. JNJ sold today at 66.45 for a gain of 59.00 minus total commissions of 17.90 leaving a net on the stock at $41.10. My net was profits of $51.00 + 41.10 for a total net gain of $91.10. Chicken feed for most folks but we are like squirrels, nibbling here and there and having it all add up. The dividends and premium received from options do add up.
Our original plan was to keep JNJ ongoing as it has an excellent dividend history and excellent dividend growth rate record. However, three things came to play. One, given the market overall condition, I wanted to increase my cash position as I see better opportunities for capital and also have cash available when the market bottoms.. which likely will be the time the Greek crisis is resolved and the FED has decided their next step to keep the economy going.
The second reason had to do with JNJ itself. I just received the dividend and the stock price gave me basically an opportunity to get out barely above even. JNJ will not have a dividend increase likely for 9 more months and JNJ share price is near term historically high at the moment. Looking at a chart since March 2009, JNJ has moved around a lot but keeps coming back to 57.50. If or when JNJ swings back towards 57.50 I will plan to buy back in. One method to do that is to write 'naked' puts and ladder down to that price level.
The third reason is JNJ will not pay a dividend for another three months. At that time I could get another $57.00. Instead, I can utilized that capital in the next three months writing Put options which will generate net premium greater than $57.00.
To summarize the three reasons...
1) JNJ might be overvalued at the moment
2) JNJ will not provide me any new income in next three months
3) Generate cash for a better opportunity
