In an era of terrible CD rates, a lot of us are looking for relatively safe places to get a decent return. Stable dividend stocks can provide a fair bit of return but of course they come with risk. Generally when we look for dividend stocks, we're not looking at the NASDAQ, however there are some good finds on that market. In fact when using a technique to lower your risk, some of these stocks become very attractive.

The technique I'm speaking of is selling covered calls. If you're not familiar with this technique, the ideas can be fairly complex and the article I've referenced can help you. The general idea is you sell someone the option to buy the stock from you at a given price over a given time. By selling this option, you reduce your risk and cost-basis. This, by implication, increases your yield. Because the NASDAQ stocks tend to be a bit more volatile, their lower base yields can actually become quite attractive once you sell a call on them.

Of course in all these cases you have a significant downside risk and your upside is limited. However this is a much more conservative approach than an "uncovered" position.

The Stocks

For the purposes of this comparison, I've put together a list of stocks I think might be attractive from the NASDAQ for their dividends, or even better for selling covered calls on. For the purposes of calculating the yield with a call, I've assumed that we're selling January 2011 calls with strike prices fairly near the current price (usually the highest strike price that was lower than the current price). Commissions were assumed to be $25 for the calls and the stocks, which may be very low depending on your broker. I've also assumed we're buying 500 shares and selling 5 calls. Most of these assumptions make a fairly minimal difference in the final yield however.

Stock Price Yield Yield With Call Break Even Price ADP $44.25 3.10% 7.01% $39.70 NTRS $54.81 2.10% 7.01% $46.72 PAYX $32.29 3.90% 6.68% $28.11 LLTC $28.49 3.30% 7.07% $23.35 ROST $54.21 1.20% 6.92% $46.78

Explaining the Columns

The columns are fairly self explanatory:

Stock is of course the ticker symbol.

is of course the ticker symbol. Price is the closing price of the stock today

is the closing price of the stock today Yield is the current dividend yield of the stock.

is the current dividend yield of the stock. Yield with Call is the yield assuming you are not called out until the expiration of your option given the parameters listed above. Obviously this yield is not guaranteed and you could actually lose money.

is the yield assuming you are not called out until the expiration of your option given the parameters listed above. Obviously this yield is not guaranteed and you could actually lose money. Break Even Price is the price (assuming the stock continues to pay the same dividend) to which the stock would have to fall before you would lose money on this transaction.

Conclusions

While you do not usually think of NASDAQ stocks as being prime candidates for dividend investing, the situation gets much more interesting once the call options are included in the equation. Interestingly each of these stocks winds up with a yield in the roughly 7% area after selling a Jan 11 call on the stocks. The determining factor for your level of risk should probably be the break even price. In the circumstances listed above, LLTC would have to lose nearly 19% of its value before you'd start losing money, while NTRS would have to lose only about 10%. So your question in picking one of these stocks is: which is the least likely to reach its break-even price?