How to Turbo Charge Your Dividend-Paying Stocks

You are receiving this email because you signed up to receive True Market Insider. Unsubscribe Keep the emails you value from falling into your spam folder. Whitelist True Market Insider. Forgot your login information? Click here. How to Turbo Charge Your Dividend-Paying Stocks Think things can't get any worse for income-oriented investors? Think again… According to an analyst report recently published by S&P Dow Jones Indices, this year dividend payments for companies in the S&P 500 declined by $42.5 billion in the second quarter as compared to the same period a year ago. That was the largest decline since the first quarter of 2009 during the great credit crisis. With the economy plunging into recession and profits expected to fall about 44% from a year ago due to the coronavirus pandemic, companies have been forced to dial back on distribution payments to shareholders in order to preserve cash. When things will begin to normalize is anyone's guess. That likely depends on the path of the virus and on how quickly the economy can fully reopen. So for investors dependent on income, the pool of attractive higher-yielding securities grows smaller and smaller. In last week's column, we shared a nifty income generating strategy that allows you to receive steady and reliable income roughly every 30 days. We dubbed it the "Paycheck of the Month Club". The strategy involves buying at least three high-yielding, quarterly-dividend paying stocks with the disbursement dates spread out in a way that ensures you a dividend payment each and every month. The key was to identify an early-cycle, mid-cycle, and late-cycle dividend payer. If you recall, we shared three high-yielding dividend stocks from each of the three cycles: Steel Dynamics (STLD) – Early cycle   AbbVie (ABBV) – Mid cycle   Broadcom (AVGO) – Late cycle Each of these stocks possesses strong traits of technical strength. That's important. Even though the primary goal is to generate income, we're still interested in protecting the value of the underlying asset. Focusing on technically strong stocks in a long-term positive trend increases the odds that demand will continue to bolster the stock price and provide potential for capital appreciation. After all, what's the point of earning a 3% return if the asset drops in value by 15% or more? Now, we also want to focus on fundamentally sound businesses. I bring this up because, as you know, the pandemic has been a uniquely horrible event. But now that "the tide has gone out" the virus has revealed which companies have been swimming naked. These are the firms that have proven most vulnerable during times of economic stress. They're also the ones that have been forced to cut back on the dividends or do with away with them all together. So we'll want to avoid these types of stocks. Instead, focus on the ones that have sound businesses, generate fee cash flow, and continue to support the dividend payments such as the three we've recommended. As promised, I'm now going to share with you this simple, but highly effective strategy that can considerably boost your income from this strategy. ========Recommended Link======== "RESET" YOUR RETIREMENT On July 14th at 1:00PM, Chris Rowe will reveal the secret strategies big institutions use to make obscene profits. Learn More... How to Turbo Charge Your Dividend-Paying Stocks It's an options strategy called an "over write". Essentially, it entails selling covered Call options against dividend paying stocks that you own.  And if you do it properly, it can significantly enhance the returns while generating additional income on the investments. But before we get into the details, there are several things to consider before applying the strategy: It's generally considered a bullish strategy so it works best on securities that are demonstrating a positive trend on their price charts. But it also works well on securities that are moving in a sideways pattern or not really trending in either direction. Remember, the goal here is to generate income on the asset, so the dividend distributions and the premiums collected from the option sales should do most of the heavy lifting. The Call options that are to be targeted for sale should be out-of-the-money. That means that investors should look to sell Call options with strike prices that are higher than the current market price of the stock. This allows room for additional capital appreciation should the stock happen to rise more than anticipated. You see, with a Call option, any upside gains above the strike price belong to the buyer. An out-of-the-money option ensures you'll be adequately compensated in the event the stock is "called" away. Also, Call options have a limited shelf life and tend to decay most quickly within the last 90 days of the contract date. And since this strategy entails selling option premium, the erosion of the premium in the option is to the sellers (our) benefit. That said, focus on selling Call options that are 30 to 90 days away from expiration and have a Delta of 20% or less. (Delta measures the price sensitivity of the option. But Delta also gives us the statistical probability (expressed as a percentage) of the option being in-the-money at expiration. So if our goal is to generate more income with less chance of having the stock called away, focus on the Call options with a Delta of 20 or less.) Target the Call option with an expiration date that coincides with the dividend cash payment. That means, depending on the cycle, that you'll be looking to locate an option with a life span of 30 days to 90 days. That's your sweet spot. This will also ensure that for each of the three dividend cycles, you'll be collecting cash payments every month from the Call. In other words, instead of collecting one paycheck a month, you'll get to collect two paychecks a month. One being paid by the company (dividend) and the other being paid by the options market (from the sale of the Call option). Let's use AbbVie (ABBV), our mid-cycle dividend payer, as an example. And let's say that we own 200 shares of stock. If you recall from last week's column, shareholders of record as of July 15th (you must own or have bought the stock prior to July 14th) will receive a $1.18 dividend distribution. The payment will be made on August 18th. Since we own 200 shares, we would expect to receive a $236 dividend payment. At the current share price of $99.60, the current yield is 4.9% annualized. Not too shabby… But if we want to turbo charge those returns, we could look to sell two out-of-the-money Call option contracts and generate even more income. You could look to sell the ABBV August 110 Call for $0.70.  (Note that we are choosing an expiration date that is aligned with the distribution date of dividend payment.) Since we own 200 shares, we can sell two Call option contracts and collect another $140 in income. The Call option is a little more than $10 out-of-the-money and has a Delta of 15.  So there's only a 15% chance that the stock will be above $110 at August expiration or 43 days from now. And should it go above $110, that would represent a 10% gain in capital appreciation. So you'll be well compensated in that scenario. By selling the two Call options and collecting another $140, you boost your annualized return. With 43 days until expiration, the Call option sale generated a 6% annualized return. Strategies like this one really let you take control of your investing results. (I promise you, your friends are probably complaining they can't find good income investments.) And there's more great stuff where this came from... In fact, next week Chris Rowe is presenting an event called "The Great Retirement Reset".  In it, he'll show you what to do to make sure your portfolio is solid in every kind of market. It's FREE and you can sign up to attend by clicking here now. See you soon! Costas Bocelli True Market Insiders RETIRE IN WEALTH "Once you tap into these strategies, you can profit over and over like clockwork." Sign up now for this one-time FREE event RECENT STORIES Want to Make Consistent Money in the Market? The Most Accurate Indicator You've Never Heard Of The Best Traders All Have This "Superpower" Before You "Double Down" on a Losing Stock, Do This Instead… Copyright  ©   2020  True Market Insiders, All rights reserved. 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