Limited Brands, Inc. (LTD) Yield: 1.83%
Dividend Amount: $0.20
Ex-Dividend Date: November 22, 2011
Beta: 1.52
Limited Brands, Inc. operates as a retailer of women's intimate and other apparel, beauty and personal care products, and accessories in the United States and Canada. The company was founded in 1963 and is based in Columbus, Ohio.
There are many dividend capturing strategies, and I have used more than one. Using a call option to hedge against downward price risk is my favorite strategy. I have found I must be highly selective in the companies selected. An average holding period is about three weeks, and sometimes longer.
In this article we will go over an upcoming dividend that I may capture with a minimum amount of risk. The criteria that I use is that I must be able to sell a call option in either the front, or first back month that is in the money, and with enough premium that I will not mind getting exercised early (which happens often and can be a good thing if the trades are executed correctly).
Strategy:
In combination with my buying the stock and after checking company updates, offer to sell the December $41.00 strike call for $1.47 over the intrinsic value. The option may get exercised early for a gain. If not, after qualifying for the dividend, I will look to close out the covered option with a gain of about about $1.03.
The current book value per share is 2.08.
For the same fiscal period year-over-year, revenue has improved to $9.61 billion for 2011 vs. $8.63 billion for 2010. The bottom line has rising earnings year-over-year of $805.00 million for 2011 vs. $448.00 million for 2010. The company's earnings before interest and taxes are rising with an EBIT year-over-year of $1.28 billion for 2011 vs. $868.00 million for 2010.
At $43.69, the price is currently above the 200 day moving average of 37.03, and above the 60 day moving average of 40.50.
From a month ago, the stock has increased in price 4.27%, with a change from a year ago of 38.08%.
The stock has done very well as compared to the overall market. When comparing to the S&P 500, the year to date difference is 42.84%.
Remember, you must buy a stock at least three business days before the record date (at least one business day before the ex-dividend date) to qualify for a dividend.
My last step (completed before making a trade on the same day) is to check company announcements, and news sources for possible events that may cause the stock price to move. This is especially important during earnings season.
I research the different call options and calculate the expected probabilities based on Beta, Bid, Offer, Volume traded the current day, open interest, and time value / implied volatility. The Options offer some level of protection from down moves in the stock, and provide revenue to cover the times that the options do not fully cover down moves in the stock. Income is not needed from the option Premiums, so a break even from premiums received/stock losses ratio is a win.
I use a proprietary blend of technical analysis, financial crowd behavior, and fundamentals in my short-term trades, and while not totally the same in longer swing trades to investments, the concepts used are similar. Nothing in the article should be considered investment advise, but you may want to use this article as a starting point of your own research with your financial planner.
