Ford Motor canceled its dividend in 2006 as it restructured itself. Now, five years later, Ford will pay a dividend of 5 cents per share with an ex-dividend date of January 27, 2012.
Ford does not yet have an investment grade debt rating, which prevents many institutional funds from owning the stock. But once Ford attains an investment grade rating there could be institutional demand for the shares that is missing today.
The combination of new dividend, strong auto sales, and potential future institutional buying makes this a reasonable time to start or expand on a position in Ford stock. Using covered calls, of course.
Ford Dividend Plus Covered Call Income
Ford is one of the companies that trades weekly options, and next earnings release is not expected until January 24, 2012, which is after the Jan monthly options expire. So there are many chances to write covered calls on Ford without taking earnings risk.
Because Ford is a low priced stock (less than $11) and because the options on low price stocks typically trade for nickels and dimes, you will want to trade at least 1000 shares (and 10 option contracts) so that your transaction costs don’t eat up all of your option income. In cases where the option premium is a few pennies you will likely need to trade even larger positions.
With Ford stock at 10.72, here are a few in the money buy-writes you may want to consider (net debit = stock price – call option price):
Return If Flat
|Feb 18||10||9.50||11%||yes||5 cents||29%|