Defending Your Portfolio With Dividends

In uncertain markets, dividends can give you a critical investing edge.

As you can see from the chart on the left, just mindlessly investing in dividend-paying stocks can give you more than a 2:1 annual advantage in your investments.

Of course, here at PSW, we teach the art of selling options premiums – something that turns virtually any stock into a “dividend” payer. For example, MSFT is only a small, 2% dividend-payer but a fairly solid cash-machine of a stock that we don’t feel is likely to go bankrupt overnight so it makes for a nice safe staple in a long-term portfolio. But MSFT is also a very poorly-run company that hasn’t grown in 20 years but we can make it a much more interesting stock by simply selling covered calls.

For example, we buy MSFT for $24.23 and we sell the Sept $24 calls for .77. This lowers our effective basis to $23.46 and selling the call puts us in no special danger – we are simply agreeing to sell MSFT for $24 on expiration day in September (the 17th). Should the stock be called away from us, we make a .54 profit or 2.3% of our net $23.46 cash investment in less than 30 days. That works out to a 26% annualized ROI and, even if we get called away, we can simply buy the stock again and again and sell calls every month. Of course, you can optimize all this with timing and we favor stocks that are on sale – this is just a very simple example of how our most basic options strategy can drastically boost your annual returns on any stock in your portfolio.

Let’s say you don’t want to mess around with MSFT every month. You can simply sell the 2012 $22.50s for $4.40, that drops your net entry from $24.23 to $19.83 and getting called away at $22.50 would be a profit of 13.5% over 17 months PLUS you would be getting your .52 annual dividend so let’s call it .75 more for a total profit (if MSFT holds $22.50) of $3.42 or 17.25% – 1% a month certainly beats what the banks are offering these days! Not as sexy as the 26% ROI you make by working the trade every month but you do get a built-in cushion that drops your break-even price to $19.83, which is a full 18% below the current price. So MSFT would have to fall…

…Woops! That’s the end of the free article. And, as you know, Uncle Phil doesn’t allow me to post the full version of the article. Nothing is free in this world, but I AM his nephew, and that means I can get you a discount. This particular article was an important one geared specifically towards his members. If you’d like a discount on a membership to Phil’s Stock World (which includes breaking information about stocks multiple times per day and many other things including, but not limited to, full versions of his articles), please just follow this link:

http://philstockworld.com/membership/signup.php?affiliate_special_signup=1&coupon_or_referrer=jad714

What is my standing with PSW? I’m what’s called an affiliate. My job is to do…essentially what I’m doing now. I’m a special kind of affiliate, so I do a bit more, but you can be an affiliate for free and make commission off of everyone you sign up! What have you got to lose besides a little bit of time? If you would like to be an affiliate, please email me at jad714 at aol.com.

Advertisements

About jad714

I'm 17 and freshly entering the world of stocks! I'm using my Uncle's website at www.philstockworld.com to get my information. His articles are fascinating!
This entry was posted in Uncategorized. Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s