New Dividend Trade in MMP

Typically I would not post these real time, they are part of the members portfolio. However, since we aren’t currently accepting new members I have decided to post of few of these for free.

Magellan Midstream has a dividend ex-date of 2/6/23 with a divided of 7.75% or $105/quarter right now. It is also in a good value area from an P/E stand point.

Earnings per share yield is 9.31% with is in the area I like to see.

My goal here is to get into these trades with as little risk as possible. This means I am using a trade that protects my downside while allowing me to capture at least one dividend, hopefully more. Any dividends I receive will be used to purchase more shares. If this trade closes out, any profit I make will be used to purchase additional trades as I wait for a chance to re-enter and start the process again to continue to build this position. This can be a slow way to build your dividend portfolio but in the end you will have a low invested amount if everything works out.

Of course, I only trade securities I would not mind owning.

MMP is trading at $53.51, I think the the best way to get this started is using a Collar.

Buy 100 shares of MMP @ $53.51

Buy 1 7/21/23 $50.00 Put contract at $1.88

Sell 1 7/21/23 $57.50 Call contract at $.86

If the bottom completely falls out of this trade the most I can lose is $445.00 so that is what I am using as my risk.

If MMP shoots above $57.50 before the 2/6/23 dividend and my shares are called away my profit will be $297.00 plus whatever I can still sell the Put for. Just using the $297.00 my profit would be 66%.

If MMP stays below $57.50 before 2/6/23 I will collect the $1.05 dividend which is $105.00. This reduces my outstanding risk to $445.00 – $105.00 or $340.00. After that I should receive another $1.05 dividend around May, which drops my risk to $340.00 – $105.00 or $235.00. If MMP goes above $57.50 before the May dividend and my shares are called away my profit would be the $297.00 plus the $105.00 February dividend or $402.00. Based on my initial risk of $445.00 my profit would be 90%.

Then I start the process over again.


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