5 Dividend Stocks To Sell Puts On

Summary

  • I have stock positions in most of these companies and believe you can too, especially if you are dividend income investor.
  • All of the stocks are in my buy zones and close to bullish primary wave set-ups.
  • The heavy hedging in the stock market right now probably needs to unwind a bit which means at least a short shallow rally, so, time for some options to expire.
  • I strongly recommend these ideas if you are heavier in cash than you want to be as these can generate some income without extending risk much.

Each week I use our TradingView scanner to monitor for oversold or overbought conditions on watchlists (Very Short Lists) and focus lists (Plug & Play Stocks and Plug & Play ETFs). Our dual goals are to add income to our portfolios, as well as have stocks and ETFs put to use that we want to hold longer term. 

This week there are 5 dividend stocks that look ripe for selling cash-secured puts. In addition, there are several stocks worth selling covered calls on, in particular in the energy space. I will include a snapshot of screener. 

Stocks To Sell Cash-Secured Puts On

Remember, never sell a cash-secured put on a stock or ETF that you aren’t comfortable owing from the strike price.  By using our “buy zone” which takes into account fundamental, technical and quantitative factors to sell options, we can often 5-10% per year in premium income without taking added market risk. 

Per our Using Retirement Income Options Checklist, these stocks are oversold or near oversold, as well as, fundamentally well priced. Strongly consider selling puts on these stocks this week or next.

All of the puts being sold here are March regular monthly expiration which is a quadruple witching day which normally has increased volatility. If you need to roll any of these, the day or two before is a good idea, however, anything close I typically leave alone and let play out. 

AT&T (T)

AT&T will complete its merger with Discovery (DISCA) in Q2 2022. I strongly recommend getting a position in both stocks. AT&T is my only double stock position at about 8% of appropriate portfolios. 

I believe AT&T will be rerated higher after the spinoff of Warner Brothers to a similar valuation as Verizon (VZ) and T-Mobile (TMUS). I also see 3 catalysts that could drive AT&T into a higher valuation range and grow earnings beyond expectations which would lead to share buybacks as the CEO has said he’d like to do.

I think that Warner Bros Discovery [WBD} will be one of the 5 or 6 must have streaming services and has a top international footprint to grow into. I think it will be a potential 5-10x stock.

Selling cash-secured puts on T now, might be a “last chance” to add exposure before the spinoff.

I like selling the $23 March 18th puts for a buck or more. Set a GTC limit at $1. That will net a price of $22 for T which is at our bottom fishing price.

March 18th is a triple witching expiration, coming when we expect a Fed rate hike, so higher volatility could lead to the stock being put to us – I like that.

T cash-secured puts (TradingView)

Shooter’s Elliott Wave chart coincides with my buy zone.

T Elliott Wave (Scott Henderson)

Intel (INTC)

I believe that Intel over the next decade will grow the way that Taiwan Semiconductor (TSM) did in the last decade. Their deals to expand production in the U.S. to do similar business is a sharp move of supply chain for semiconductors to America. The secular trend is on their side, the government is giving them money to get started and Intel has a fortress balance sheet. 

Intel is at the top of our Buy Zone and in a very strong support zone. Short of a major stock market collapse it has only a few dollars of downside.  It is also close to Shooter’s Elliott Wave next primary wave formation and below max pain option analysis. 

I like selling the $47.50 March 18th puts for $1.50 or more.

Picking up a premium of $1.50 doubles the annual dividend payout which stands at $1.46 yielding – a bit over 3% today. In other words, suddenly, if put to you, Intel would have a combined income yield (premium plus dividend) over 6% to you the first year. Another way to look at it is if not put to you, you got to collect the premium without owning Intel.

I also think a starter position on a down day makes a lot of sense. My 5-year X-score (potential price growth factor) on Intel is 5x. 

INTC Buy Zone (Kirk Spano via TradingView)
INTC Elliott Wave (Scott Henderson)
Max Pain (maximum-pain.com/options/intc)

Unilever (UL)

This is not on our Plug & Play focus list, however, is on the broader Very Short List watchlist. They are currently seeing a lot of drama as the company is navigating releasing value in the company. Nelson Peltz an activist hedge fund Trian Partners has built a stake. He was instrumental in revamping Procter & Gamble (PG). 

The company has plans to split into 5 divisions soon which I believe will unlock value. I think there is a STRONG likelihood a division or two is sold off and/or engage in mergers. That is not unlike the expectations I had for AT&T (T) and Lumen Tech (LUMN).

The new “nutrition” division could see substantial growth from cannabis investments. Next year falling inflation should also benefit the company.

Currently, Unilever trades at slightly below its average valuation reflecting slow growth prospects, again, I think the split up will unlock growth and value in certain divisions. You can learn more by watching their full year results webcast on or after February 9th.

I like selling the $50 March 18th puts for a buck.

A dollar represents an income addition of 50% of the annual dividend which stands at $1.99. I am also taking a starter position for certain retiree accounts. 

$50 is the magnet “max pain” price, but I think it might not get hit if the full year results and restructure plan are met with enthusiasm. 

UL Buy Zone (Kirk Spano via TradingView)
UL Elliott Wave (Scott Henderson)

New Fortress Energy (NFE)

If you are bullish on LNG, then this leveraged play is for you. The company is in a similar position to many oil stocks 2 years ago. Heavy debt and an uncertain future. So, it takes a bullish view of LNG to like this pick.

New Fortress offers its unique Fast LNG liquefiers which is done at sea connecting rigs to storage/conversion to freighter. 

Fast LNG (New Fortress Energy)

I think New Fortress is about to start dramatically increasing EBIT and free cash flow. The trend apparently has already started as EBIT was positive $76m in the trailing 12 months after being negative. 

If New Fortress fails to capitalize on natural gas in the next year or two, then there will be dilution. I believe the current share price reflects that possibility, so is mostly bake in. If they do continue to grow and add free cash flow, then a return to highs seems likely in the next year or two.

The kicker on New Fortress is a future play into hydrogen. I encourage you to read their current presentation. Their full year results are March 1st.

I currently own a full 3-4% position in NFE. For those that don’t, I like selling cash-secured puts and taking a small starter position.

I like selling the $20 March 18th put for over a buck. 

New Fortress is in my buy zone. 

NFE Buy Zone (Kirk Spano via TradingView)

Shooter’s Elliott Wave shows a bit more downside before a new primary wave long pattern. This is a volatile sector, I think this could certainly happen.

NFE Elliott Wave (Scott Henderson)

If you are concerned about this, then increase your premium on the trade to about $3.50 and set a GTC limit order or use a lower strike price like $17.50 with a premium GTC of $1. Max pain is currently at $25, so, price magnetism is up from here.

Atlantica Sustainable Infrastructure (AY)

Atlantica is a sustainable infrastructure company that manages renewable energy, natural gas, transmission and water assets. It gets substantial drop down projects from Algonquin (AQN) which owns 44% of its stock.

There is risk to these models for deals that do not carry sufficient return or carry too much risk. This has not been the case here and historic problems in the industry have largely regulated those risks. 

Atlantica’s share price has fallen to the point where it is largely de-risked in my opinion. It currently carries a dividend over 5% and has CAFD (cash available for distribution) growing at middle single digits, i.e. expected dividend increases. In other words, a 5-6% dividend at this price growing at 5-6% per year on average.

The company has a particularly good debt structure with no major debts due until 2025 with many available to be refinanced even cheaper by then. Here is a great visual for understanding how well positioned they are: 

Atlantica Debt By Project (Atlantica Q3 Presentation)

The stock is at the top of my buy zone. I think this might be about right as further down would be a significant valuation overshoot on bearish market sentiment.

AY Buy Zone (Kirk Spano via TradingView)

Shooter’s Elliott Wave shows a bullish primary wave set up at $29.47.

AY Elliott Wave (Scott Henderson)

Max pain sits at the $30 March 18th put.

I am selling the $30 March 18th puts for a buck GTC. 

This compares to its $1.74 annual dividend. I am also taking a 1/2% starter position in retiree accounts.

Stocks To Sell Covered Calls On

Due to the broader stock market correction so far this year, there are not many covered call opportunities. Our last big batch of covered calls was in December. 

Right now, covered call opportunities are concentrated in oil, banking and consumer staples. If you own any oil stocks yet, there is over a million barrels a day of oil coming online in the next year from Permian producers, mostly Chevron (CVX) and Exxon (XOM) who announced nearly 900k between, but also Pioneer (PXD), Occidental (OXY) and a few others. There is also more coming from offshore and OPEC. Oil price is almost certain to start falling after Labor Day.

Here is a snapshot of the screener for my VSL+  which is our traditional VSL plus several other large cap stocks that I keep an eye on.

Covered Call Opportunities (TradingView)

A quick note on energy stocks. In my career, selling into perceived shortages of oil has been a great strategy. I did it in 2007 and 2014. Both times I avoided significant losses and was able to make a profit shortly later by betting on a decline.

Disclosure: I/we have a beneficial long position in the shares of T, INTC, AY, UL, NFE either through stock ownership, options, or other derivatives.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Long stock of T, INTC & NFE. Puts sold on all five.