Given the 30%-plus rise in the S&P 500 since March 9th, 2009, is it still possible for income investors to find high dividend stocks whose prices haven't gotten ahead of themselves?

On a recent bottom fishing expedition, I screened for 3 preliminary parameters:

1. High Dividend Yield - Above 5 % (The S&P 500 average dividend yield is approximately 3.42%).

2. Moderate Dividend Payout Ratio - Below 50 % (The S&P's payout ratio is approximately 59 %).

3. Less Than 40 % Above 52-Week Low

4. Options Available

This preliminary screen yielded several companies, from 4 different sectors: Consumer Goods, Industrials, Basic Materials, and Financials.

I then added the following 2 balance sheet screening ratios, in order to find the most well-funded companies:

1. Current Ratio: Over 1.5

2. Long Term Debt to Equity: Under .5

These additional screens yielded just 5 companies, one of whom I've been following for awhile - Cal-Maine Foods, (CALM).

You may have often heard the advice, "Only invest in what you understand". Cal-Maine Foods just happens to be one of those easy-to-understand companies - they're the biggest distributor of eggs in the US.

Eggs are a basic food staple, something that consumers aren't going to do without, even in a recession. In fact, during a recession, consumers tend to eat at home more often, which plays to Cal-Maine's strength as a major distributor to supermarket chains.

CALM compares favorably within its peer group, Packaged Foods: Poultry & Meats, sporting the 2nd highest dividend yield, (7.5%), and the 2nd lowest beta, (.40).

In line with the S&P 500's rally gain, CALM is currently 34% above its 52-week low of $17.01, and approximately 53% off its high of $48.80.

What's the best way to invest in CALM? That depends upon your risk profile, and your assessment of the market. If you're an income investor, looking to maximize your yields, there are 2 different approaches that may suit your needs, each based on different outlooks:

(For simplicity's sake, we'll illustrate this trade example by buying 100 shares, since 1 option contract controls 100 shares of the underlying stock.)

Scenario A (BULLISH): Covered Call/Buy-Write approach:

1. Buy 100 shares of CALM at $22.58, (its 5/28/09 opening price).

2. Sell 1 November $25 call contract for $1.75/share. (A 7.75% yield)

3. Collect $.86/share in dividends before expiration. (A 3.81% yield)

When the November 21, 2009 expiration date comes, you'll either:

1. Collect an additional $2.42/share in capital gains, due to the stock rising to or above $26.75, (the $25 strike price plus the $1.75 call money).

OR

2. You'll get to keep your shares, if the stock doesn't rise to the resale trigger price of $26.75. Your new basis would be $19.97, (your original cost of $22.58 less the dividend and call income you received).

At this point, you could repeat this strategy, if you wanted to hold CALM for an additional period. SInce your cost basis would now be $19.97, you could research selling new calls at $22.50, or even at $20.00, if you weren't feeling as bullish in November.

The annualized yields on this 6-month trade, ($22.58 cost basis), are as follows:

1. Call Yield: $1.75/share = 15.98%

2. Dividend Yield: $.86/share = 7.85%

This $2.61/share in income equals a 23.83% annualized static yield.

Notice how the call yield is over twice the dividend yield? This gives you added protection, in the event of an unforeseen dividend cut or other negative event.

3. Assigned Yield: $2.42/share = 22.1% (As noted above, if CALM rises to or above $26.75, your shares will be sold at the $25 strike price)

Your breakeven in this trade in $19.97/share, or 11.56% for 6 months.

Your maximum profit is $5.03/share, or 22.28% for 6 months, which equals an annualized yield of 45.9%.

That's a pretty good day's fishing.

In Part 2 of this series, I'll detail a less bullish, more defensive strategy with this stock, which gives an investor an equally impressive yield.