How to create an extra dividend on CBA

by Michael Gable

The last few days on the market has seen a stella performance by the "safe' high yielding stocks. If we look at CBA, from early June, we can see that a breakaway gap was created down under $49. After experiencing a continuation gap two weeks later, the stock continued to rally hard. From here we can see obvious divergence with the RSI, where the share price has gone to a new high, but the momentum was trending down. The stock has how gapped up once more to form an exhaustion gap, with a lot of volume coming in yesterday (circled). This means that after rallying 14% in two months, there are lot of investors out there suffering from a "fear of missing out". As a result, the price has taken a final run up towards the top. You only have to look at BHP's last move up to $50 last year to see a similar situation.

Therefore if you are holding the shares for a dividend next month, there is an opportunity to write a covered call here to pick up some more income. At the moment the $52.01 European August Call is selling for about $2. So once CBA goes ex dividend, if it has still fallen enought to be under $52.01 by expiry, you keep that $2. You therefore get the dividend (which last year was $1.88), plus another $2.

 

Disclaimer

Disclaimer: Michael Gable is an Authorised Representative (No. 376892) and Fairmont Equities is a Corporate Authorised Representative (No. 444397) of Novus Capital Limited (AFS Licence No. 238168). The information contained in this report is general information only and is copy write to Fairmont Equities. Fairmont Equities reserves all intellectual property rights. This report should not be interpreted as one that provides personal financial or investment advice. Any examples presented are for illustration purposes only. Past performance is not a reliable indicator of future performance. No person, persons or organisation should invest monies or take action on the reliance of the material contained in this report, but instead should satisfy themselves independently (whether by expert advice or others) of the appropriateness of any such action. Fairmont Equities, it directors and/or officers accept no responsibility for the accuracy, completeness or timeliness of the information contained in the report.