The Money Tree

Safely Generating Income in Retirement

Posts Tagged ‘OKE’

New Investment – KMI

Posted by mounddweller on March 30, 2018

Fellow Investors,

Over the past few weeks I have been looking to make one or two opportunistic additions to my long-term investment portfolio.  In a previous post I mentioned an interest in IBM and OKE.  I still have both of these on my radar screen.  However, my interest in OKE and the fact that mid-stream O&G companies in general have fallen out of favor on Wall Street led me to expand my research.  In addition to OKE, I also began to keep an eye on ENB and KMI.

All 3 companies are leaders in the mid-stream space of the O&G industry.  While I really like OKE, I decided to do more due diligence on ENB and KMI because, in my opinion, they represented a better value.  Then, after comparing ENB and KMI, I decided I liked KMI just a bit better than ENB for the following reasons:

(1) ENB pays dividends in Canadian dollars, thus there is a currency risk,

(2) KMI is further along in strengthening its balance sheet.

Thus, last week when it appeared pessimism was at a peak I made two trades.  First, I bought 200 shares of KMI at $14.84 per share.  Second, I STO 2 KMI SEP 15 puts at $1.30.  KMI currently pays a $0.50 dividend.  Thus, my initial dividend yield is 3.37%.  Nothing to get too excited about, right?  However, if you’ve followed KMI in the past you know that they have had a few rough years.  They grew too fast and incurred too much debt.  As recently as 2014 KMI had paid quarterly dividends at an annual rate of $2.00 per share.  In order to restructure their balance sheet and get back in the good graces of the analysts on Wall Street, they cut their dividend by 75% and used the savings to pay down debt and become self-funding.  By that I mean their plan going forward is to fund all of their future growth out of existing cash flow without having to access the debt or equity markets.  Having done that for the past couple of years KMI is now positioned to again begin growing its dividend.  For 2018, they have announced plans to increase the dividend from $0.50 to $0.80.  Barring unforeseen events the plan calls for further increases to $1.00 in 2019 and $1.25 in 2020.  If these plans come to fruition my yield on cost in 2020 will be a very impressive 8.42%.

Now, let’s take a look at the puts I sold.  As referenced above, I STO 2 KMI SEP 15 puts at $1.30.  I decided to sell these puts for a couple different reasons:

(1) I wanted to leg into a full position in KMI over time, and

(2) the relatively high VIX gave me an opportunity to make a higher ROIC than if I had just bought another 200 shares of stock.

Since these are cash secured puts my ROIC is 8.67% (1.3/15).  That is significantly higher than 5.39% (0.8/14.84) return I would have gotten had I just purchased the shares outright.  Better yet, my annualized return on the puts is 17.57%, since my maximum holding period is only 180 days.

If I have KMI shares put to me in SEP at $15, my cost basis will only be $13.70.  This will give me a yield on cost of 5.84% in 2018, 7.30% in 2019, and 9.12% in 2020.

At these prices and rates of return I am very happy to have added KMI to my long-term portfolio.  I am continuing to keep an eye on OKE and hope to make an equally attractive entry in it later this year.  I’d like to own OKE at $45 or less.  Thus, it will take a bit more volatility in the market before I can hope to achieve this price target.

Best Regards,

Troy

 

 

 

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About my long-term holdings

Posted by mounddweller on January 3, 2018

Fellow Investors,

The post today is a few words regarding the long-term holdings portion of my portfolio.  Looking at the data in the “Long Term Holdings” tab you can see that I began accumulating these positions about 10 years ago.

My thought at the time was to begin accumulating large cap, dividend growth stocks at reasonable prices as the opportunity presented itself.  Then, I would automatically reinvest the quarterly dividends until such time as I was ready to retire and begin cashing those quarterly dividend checks.  Since these were ‘buy and hold forever’ stocks I tried to ignore month to month fluctuations in price.  I feel the plan has been successful.  The portfolio now has 15 stocks, 11 C-Corps and 4 MLPs.    My strategy has been to buy when the stock is currently out of favor.  Doing so has allowed me to buy AT&T at an average cost of less than $32/share, Exxon Mobil at $73, Intel at $24, McDonald’s at around $94, and Microsoft around $29.  With all of these companies increasing their dividends per share on an annual basis my yield on cost is substantial and will only continue to increase.

So, you may be wondering what I currently have on my watchlist.  As you might expect, given the current market conditions, not much!  However, there are a few companies that I would like to add to the portfolio if the opportunity presents itself.  IBM is one such company.  I’ve looked and passed on it multiple times in the past couple of years when the dividend yield exceeded 4%.  22 straight quarters of declining revenue make me a bit nervous to pull the trigger.  However, I think they may be very close to putting this bad string of results behind them.  If they have a good 4th quarter of 2017 and we get even a mild correction in the market, I’d buy a small number of shares at $150 or less.

Another stock I have my eye on is OKE.  It is a large mid-stream oil and gas pipeline company headquartered in Oklahoma.  It has excellent growth prospects and despite jumping in the first couple days of trading in 2018 still yields a very respectable 5.4%.  I didn’t anticipate it jumping out of the gate in the new year and so now will wait for it to cool off and pull back a little bit.  I will be pleased if I can get it at $53/share or less.

Well, that’s it for this post.  Later this week I hope to introduce you to the real estate portion of my portfolio.

Regards,

Troy

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December 2013 – Results

Posted by mounddweller on January 1, 2014

Fellow Traders,

Happy New Year!  While sitting in my easy chair and watching bowl games I’m going to take a moment to document the trades I closed in December.  In December I closed 7 trades in 6 stocks, $VIX, ABT, ADM, CSCO, OKE, and RYN.

(1) $VIX – This is one of the 3 trades that I closed for a loss in 2013.  The problem with this trade is that I waited too long to roll out my long calls.  Back on October 18 I BTO the JAN $13 calls.  According to the rules of the trade strategy I should have rolled them out to FEB/MAR when the premium had decreased by 20%.  Forgetting to do this, I let too much premium erode and when volatility did increase the increase in the premium was too little too late.  My inattentiveness cost me $255.90.

(2) ABT – On 12/31 I BTC 3 JAN $36 puts at $0.10.  I STO the trade back on 12/9, selling the puts for $0.46.  My ROIC for the 22 day holding period was 0.84%.

(3) ADM – On 12/23 I BTC 3 JAN $39 puts at $0.24.  I also STO this trade on 12/9, selling the puts for $0.63.  My ROIC for the 14 day holding period was 0.86%.

(4) CSCO – You’ll recall last month I told you about my setting up a put ladder in CSCO.  I sold puts with JAN, APR, and JUL expirations at the $20, 19, and 18 strikes respectively.  The objective of the trade was to eventually own CSCO at a net cost per share of < $20.  Since executing that trade CSCO has ran up substantially greatly reducing the premiums in my puts.  Consequently I decided to take some profit by buying back the APR and JUL puts.  My ROIC for the 47 day holding period was about 1.64%.

(5) OKE – This is the last of the 3 trades that I closed for a loss in 2013.  It was a very small loss of only $12.85, but a loss nonetheless.  This is a trade that I initiated back in May.  My original intent was to sell puts and accept assignment to establish a long-term position at a price at which I was comfortable owning the stock.  Events at the company caused the stock price to gyrate wildly.  I mistimed my recovery trade and then was left watching the stock run away from me.  I don’t have an interest in owning it at the current price so I chose to BTC my open puts for the small loss.  If OKE returns to my buy range I may consider selling puts again.

(6) RYN – Last up is Rayonier.  This is a long-term holding of mine.  Earlier this year they announced disappointing forward guidance and the stock sold off sharply.  Rather than just buying more stock outright I chose to sell an ITM put.  Doing so netted me $167.55.  My ROIC was 3.72% with a 35 day holding period.

Later today I’ll be updating the “Historical Results” tab to include the results of all of my trading in 2013.

Regards,

Troy

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Results – July 2013

Posted by mounddweller on July 31, 2013

Fellow Traders,

July is history.  Wow, 2013 is going quickly.  July turned out to be a good month.  Let’s check those results.

Number of Closed Positions: 7

Profit on Closed Trades: $1,272.00

Total Capital Used on Closed Trades: $71,350.00

Average Number of Days Trades Were Open: 24.6

Return on Invested Capital: 1.78%

Let’s dig a little deeper into these 7 closed trades.  All 7 of the closed trades involved naked puts.  Six of the seven expired OTM.  The other one was my ‘day-trade’ in POT which I wrote about yesterday.  I had puts expire in CHRW, CAT, KO, TEVA, and two positions in LNCO.  I sold the CHRW JUL $55 puts at $1.10 when CHRW was at $55.97 (it has strong support at $55).  The puts expired OTM with CHRW closing at $60.60.  CAT was at $83.86 when I sold the JUL $80 puts for $1.00.  At expiration CAT closed at $85.65.  My first time trading KO also turned out well, I sold the JUL $38 puts at $0.40 when KO was at $39.54.  They expired OTM with KO trading at $41.09.  Last up are my two trades in LNCO.  With LNCO trading around $30.70 I sold the JUL $27.50 and JUL $25 puts at $1.05 and $0.55 respectively.  It was a wild ride.  LNCO dropped to an intra-day low of $23.03 on July 5 before recovering to close on expiration at 32.18.

Now let’s look at my open trades.

Number of Open Positions: 7 (in 5 stocks)

Net Cash Flow in July from Open Positions: $(110.45)

Total Capital Used on Open Trades: $65,662.93

Net Cash Flow on Invested Capital: (0.168%)

Currently I have open positions in EXC, GDX, OKE, MSFT, and SUNE (WFR).   Let’s look at each one starting with EXC.  I just can’t seem to find the right rhythm with EXC.  If I weren’t wanting to re-establish a long-term position in this company I would have given up long ago and moved onto trading something else.  Long time readers will recall that I had a position in EXC that got called away in 2012.  Since then I have been trying to build a new position.  In May I started by selling the JUN $34 puts.  As EXC continued to move up more I feared having it run away from me so I lost my patience and bought 200 shares at $35.55 only to see it begin to fall almost immediately.  I ended up having to roll the JUN $34 puts out and down to JAN $33 for a small credit.  Then in June I sold more puts at the $32 strike.  As these went ITM I rolled them down and out as well to the JUL $31 puts.  When the JUL $31 puts went ITM I decided to cut my losses and bought to close them for a small debit.  Again, my patience cost me.  EXC bounced and closed at JUL expiration above $31.  Had I been more patient they would have expired OTM.  Finally, to finish the EXC saga for this month, today I sold some AUG $30 puts at $0.40 in an effort to reduce the debit I created when I closed the JUL $31 puts too early.  All of this activity has put me at just about at break-even.  The only one getting rich on this trade is my broker.

Let’s move onto my remaining open trades.  I won’t bore you with any more details on GDX.  It continues to hover between $26-$28.  I am way under water on this trade.  Next up is OKE.  Like, EXC I’m having trouble figuring this one out.  This is another company I’m trying to establish a long-term position in.  Back in May I sold JUN puts at the $47.50 strike.  Shortly thereafter the bottom fell out on the stock and I ended up rolling my position down and out to the JAN $45 puts for a $0.30 net credit.  Then in June I sold another round of JUL puts at the $42.50 strike.  When OKE fell below $42.50 I decided to close that position and began looking to sell something else further out and down for a credit.  Alas, like with EXC, had I just been patient the JUL $42.50 would have expired OTM.

OK, not all of my open positions are basket cases.  I actually have two open positions that are performing well.  I am short MSFT AUG $30 puts.  I opened the trade on July 19 selling the AUG $30 puts for $0.39 while MSFT was at $31.06.  I have no reason to believe these won’t expire OTM.

My last open position is in SUNE (WFR).  You’ll recall last month that I mentioned that I had sold the JUL $10 calls at $0.25.  These ended up expiring OTM so I wrote another round of calls for August also at the $10 strike.  I was able to sell these for $0.68.  SUNE has been on both sides of $10 this week so time will tell if I’ll get called away at expiration or be able to write another round of calls.

 

Going into August I am considering another round of naked put trades TEVA, CAT, CHRW, and CCJ.  All are once again approaching key support levels.

Regards,

Troy

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Results – June 2013

Posted by mounddweller on June 29, 2013

Fellow Traders,

Another month has flown by exceedingly fast.  It has been a bumpy ride what with the mini-correction.  Let’s take a look and see how I did.

Number of Closed Positions: 2

Profit on Closed Trades: $235.10

Total Capital Used on Closed Trades: $20,050.00

Average Number of Days Trades Were Open: 31.5

Return on Invested Capital: 1.17%

OK, before I move on to the stats for my open trades, let me tell you a little more about these closed trades.  Both of the closed trades were naked puts.   Both expired OTM.  My first trade was Merck (MRK).  I sold the JUN $44 puts back on May 9 for $0.64.  At the time MRK was trading at $45.33.  It peaked at over $49 in early June and is now heading back down and approaching resistance.  I’ve got it on my radar screen and will definitely trade it again once it gets a little lower.  Friday it closed at $46.45.  My other closed trade was in TEVA.  On June 3 I sold the JUN $37.50 puts for $0.42.  At the time TEVA was trading at $37.97.  I have been trading the TEVA naked puts at the $37.50 strike price for 3 months now.  It is trading at multi-year lows and I’d like to establish a long-term position in it.

Now let’s look at my open trades.

Number of Open Positions: 11 (in 8 stocks)

Net Cash Flow in June from Open Positions: $1,104.00

Total Capital Used on Open Trades: $112,012.93

Net Cash Flow on Invested Capital: 0.99%

This month I opened five new positions in CAT, CHRW, KO, OKE, and TEVA.   All are naked put trades.  I’m short CAT with the JUL $80 puts, CHRW at JUL $55, and KO at JUL $38 (first time I’ve ever traded KO!).  I opened a second position in OKE at JUL $42.50.  You’ll recall last month I sold the JUN $47.50 puts.  More about that later.  And last but not least I opened another round of TEVA JUL $37.50 puts.

Now let’s look at the 6 open positions I have that were carried over from prior months.  I still have my two deep ITM positions with GDX.  I’ve dug myself quite a hole in this one.  It will take quite some time to get back to even on these.  I’m short the SEP $41.50 puts and long stock which was put to me a couple months ago at $40.  I also have a previously opened position in OKE.  I originally sold the JUN $47.50 puts back in May.  I have since rolled these down to $45 and out to JAN.  I’ve also had to roll my two positions in EXC.  I rolled my JUN $34 out to JAN $33 and my JUN $32 out to JUL $31.  My last open position is a very old one.  Way back in May 2011 I initiated a trade in WFR.  Eventually I had the stock put to me at $10.  My position has laid dormant for quite some time as I was way under water.  Well, patience is a virtue.  The stock has now come back into favor with the boys on Wall Street and I was able to sell a JUL covered call at the $10 strike price.  By the way, WFR recently changed their name and their ticker symbol is now SUNE.

Going into July I am considering new trades in IBM and a repeat trade in MRK (as I mentioned above).

Regards,

Troy

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