How To Boost Your Dividend Yield
Jeff Miller | Jan 16, 2014 01:24AM ET
If the Fed is spiking the punch, why can't we?
In my "Weighing the Week Ahead" series, I always include some dividend history suggests an ex-dividend date in early February. It will not be paid until March, but we will be the owners before the ex-date.). This is a pretty good return for a short time.
If the stock rallies to the strike price or higher, we will also make another $1.40 on stock appreciation. Our best case return is a total of $3.13 in five weeks. When this happens, I need to find a new position, but I am willing to be patient whenever I can ring the cash register.
The Risk
The risk in these trades is that the stock price moves a lot lower. The call premium and the dividend provide some protection for a limited move, but not for a bigger decline. That is why you must start with stocks that are fundamentally sound and you are happy to own anyway. I also employ the other regular risk analysis that I monitor every week in my series.
Risk control is a matter of market risk and stock risk. You need to monitor both. Because these are conservative stocks with middle-range dividends, it is a safer program than selling calls on Google Inc, (GOOG) or Apple Inc, (AAPL).
Size
I like to have nine or ten positions. Call contracts are in round lots – hundreds of shares. The minimum size for this trade requires an investment of about $10,000 in a portfolio of $100,000.
Conclusion
This method, which I call our "Enhanced Yield" program is very profitable and much safer than a straight purchase of stocks. It is also fun to trade, since you get to make frequent changes of stocks and calls. You need a broker that has low commissions and favorable treatment for option trades. You can shoot for a return of 8 – 9% even in a sideways market.
Go ahead and try it for yourself, but start small and get a feel for the technique.
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