DGI Adventure 08-30-16 Sold Cash Secured Put  – Abbvie Inc (ABBV) – $62.50 strikes – Sept 23 Expiration

I went out of town last week for a buddy’s wedding, so this trade was actually executed on Wednesday 08/24/16. I just didn’t get a chance to write about it until today.

I last sold a put on ABBV back in June. At that time, I went through my full investment thesis process. That thesis hasn’t really changed (although the stock price sure has!)

I have however updated the portfolio page and income tracker back at the mother ship to reflect these trades.

Dividend Cycle

ABBV should go ex-div sometime in early to mid October. I would expect one more distribution at the $0.57 level before a raise next year. The company is technically one year away from dividend challenger status, but they were spun off of Abbott Laboratories (ABT) which is a dividend champion, so it’s not crazy to expect a strong “dividend culture” right?

This trade should expire only a couple weeks before the ex-div date, which is ideal for me. If I get assigned, I don’t have to hold the shares very long before I get to collect a dividend. Plus the option premium exceeds the dividend payout by nearly 13%

Investment

SPL (Strike Price Logic)

A lot can happen in two months! Back in June my strike price was $56.00, which means I’m ready to pay almost 11% more now for the same company?? That is part of the trade off to selling puts instead of just buying stocks. You can miss out on the upside.

Even with the recent upswing though, I think ABBV is still at least fairly valued, if not slightly undervalued. I had fair value at $65.14 back in June. That valuation was based on a 6.5% dividend growth rate and they’ve averaged over 10% for the last 5 years. I’m okay with $62.50, although it is getting close to the upper end of the range. I’d normally like a bit larger of a margin of safety, but a lot of stocks are quite pricey at the moment.

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