JNJ Dividend Capture Plan

by Michael Kloeckner

Premise: Capture the dividend spread on the JnjPph100

(*Strong Overlap: JNJ represents 25.9% of the PPH holdings)

Opportunity: .34 dividend spread (JNJ pays .46, PPH pays .12)

*Capital employed 100 x 100

*6005 + 5815 = 11,820 / layer

*dividend advantage .34 / 100 shares or $34

Rate of Return: 34/11820 = .287%

(105% annualized)

Components: JNJ – large-multinational Pharmaceutical & Healthcare Company

PPH – Pharmaceutical HLDRS Trust

*PPH Composition – snapshot

http://www.etfconnect.com/select/fundpages/etf_funds.asp?MFID=52886

Price Analysis: *Both trade close to 60/share, so balanced, the JnjPph100 = 1.90

(JNJ close = 60.05, PPH close = 58.15)

*1x1 - 100 factor, not ratio’d so safer

Volume Analysis: *Both have adequate volume in excess of 900,000 daily

*JNJ – 3-mo avg. Vol = 19.61M

*PPH – 3-mo avg.Vol = 969 K

Back up Hedging: *NVS: Darren’s ratio: .166, Correlation: 91%

*in a pinch potentially: PG, KMB, MRK, PFE, SGP

Concerns/Risks/Question:

*PPH trades on the AMEX is this possible to trade or do we need to wait for it to move to ARCA? (Looks like the 11/24)

http://www.holdrs.com/holdrs/main/index.asp?Action=Article&Description=&Image=&newsid={309EA49C-A63B-433B-B894-1C6371161B46}&symb=PPH&sid=166823

Reference:

HLDR site: http://www.holdrs.com/holdrs/main/index.asp

*HLDRS defined w/ explanation http://www.holdrs.com/holdrs/main/index.asp?Action=Definition