I loaded up on more GPS in my taxable account last month, and my investment thesis hasn’t really changed since I originally purchased shares back in September of last year. So this won’t be a full blown post. Just a record of the trade. Mr. Market presented an opportunity to possibly average down even further, and he’s paying me very well to take the “risk”. Sweet!
GPS will go ex-dividend on 7/1/16, when shareholders of record will be entitled to the $0.23/share payout. The payout has been stuck at this level since April of 2015. The company has a pretty strong balance sheet, so they could raise it if they wanted to, but I think management is being conservative. Technically they can maintain their dividend contender status, extending their streak to 12 years, just by keeping the distribution at $0.23 next quarter. That would only represent a 1.1% increase from 2015 to 2016 annual payout, but it would be an increase none the less. If I am assigned the shares, it will most likely be after the ex-dividend date. I will miss out on the dividend, but the premium received is actually more and I get it now instead of later…so NBD.
Today I sold one cash secured put contract for $26 ($25.22 net premium after $0.78 commission) on GPS shares with a strike price of $17.50/share and an expiration of July 8 2016. I need to keep the $1,750 in cash secured for 29 days which makes the 1.44% absolute return an 18.14% annualized return. GPS closed at $19.32 today, meaning I enjoy a very comfortable 9.4% of downside protection on top of that juicy yield. If assigned, this cost basis represents a 5.2% yield, which I would much rather have in a tax advantaged account. I would likely shift some of my exposure out of the taxable account after waiting 31 days for wash rule issues to clear.