Invest in The Small Dogs of The Dow with Covered Calls and Collect Dividend

Updated: 9 October, 2021 seen 369

The Small Dogs of the Dow, are the five lowest-priced Dogs of the Dow stocks. Currently (2020), these are the Small Dogs of The Dow stocks: DOW, PFE, WBA, CSCO and KO

In today's article, I will take a quick glimpse at a potential return from investing in these five stocks with options (covered calls) + collecting the dividend during the road.

Invest in These 5 Stocks From The Dow Jones list With Covered Calls and Collect Dividend

For this example, I'm going to virtually buy 100 shares at each company. All prices below listed as of October 8, 2020

Ticker Price Shares value Div Yearly Dividend Payout Ratio Monthly Options
DOW $48.30 100 $4,830.00 4.32% $210.00 286% $232.00
PFE $36.47 100 $3,647.00 3.92% $144.00 52.75% $145.00
WBA $36.49 100 $3,649.00 4.90% $180.00 39.96% $179.00
CSCO $39.40 100 $3,940.00 3.73% $144.00 46.86% $135.00
KO $49.56 100 $4,956.00 3.24% $160.00 90.61% $130.00
      $21,022.00   $838.00   $821.00

Data source: Google Finance, Seeking Alpha, Dividend.com and finance.yahoo.com (Stock and options prices as of October 8, 2020, options expiry November 6, 2020)

From the dividend investing perspective, these stocks all, but one looks good. The one concerning me is DOW, and the only concern is because of the Payout ratio of 286%.. maybe this is a glitch from seeking alpha, but if this is not a glitch, I wouldn't invest in dividend stock with a payout ratio of over 100%. Not anymore. I have done so in the past, investing in high-yielding ETFs and watched how dividends get trimmed or halted soon after.

To invest in these 5 Small Dogs of the Dow, I would need to have a $21,022 lump sum. Sure, this is an option, but as I don't have free 21K to throw in the stock market, I would most probably go for dollar-cost averaging - acquiring stocks over a longer period of time, say 1 year, buying once in a month.

In fact, that is what I'm actually doing here with PFE stock, I have been loading this stock since January 2020 in our partnership fund, and looking to have 100 shares of PFE by the end of the year and then start selling covered calls on it.

Also, I currently own 10 shares with KO. Most probably I will bump this up to 100 by the end of 2021

Last, but not least, when looking at the new year of 2021, I see one more potential candidate to add to our portfolio - WBA. In fact, I'm looking to add it to my mom's pension fund portfolio.

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