March 24, 2016
Dividend investing for income is a super popular strategy, but there are many misconceptions that take most dividend investors by surprise.
However, there’s a program to help you achieve significant income with super dividend training in a short amount of time.
The idea is to buy and hold stocks that consistently payout solid dividends in order to get the dividends, plus the stock growth.
After most dividend payouts, the stock market drops by the amount or close to the amount of the dividend.
In other words, you own the stock to collect the dividend, but the value of the stock drops as soon as the dividend is paid.
Not really much of a gain, huh?
So, the question is.... How long does it take the stock to “recover” after a dividend payout?
In most cases, dividend investors are looking at stocks that pay above average dividends, usually above 2%-3% annualized returns.
One way to look at dividends is based on how long it would take to own that stock at a cost basis of $0.00.
The current annualized dividend payout for GME (GameStop) is at 17%.
If GME continues to pay out at a rate of 17%, it would take just over 5 years to collect enough dividends to own that stock at a cost basis of $0.00, generating more income than the value of the stock.
This assumes that the stock price remains the same because stock prices drop after dividend payouts, but you have to look at it from a purely profit/loss standpoint.
GME has paid out 0.38 consistently every quarter and based on the current price, that comes to 17% of the stock price.
That’s $1.52 over the last 4 quarters in dividends.
So, the price of GME is either going to have to move back up or you’re going to have to continue collecting dividends for an additional 5 quarters at $0.38 per quarter and hope that GME doesn’t continue moving down.
Sometimes big paying dividend stocks are not all they’re cracked up to be and above average returns may not be worth the risks.
What dividend investors should be looking for is recoverability or how long it takes for a stock to recover from the drop that occurs after a dividend payout.
So, the idea is to create income with the stock so that eventually the income produces an amount equal to or greater than the actual stock price.
This is how you own a stock at a cost basis of $0.00.
If you’re currently invested in stocks with the buy and hold approach, you should add this Super Dividend Income Strategy to your portfolio.
A few years ago, it was impossible to receive income amounting into 150% annualized returns on any stock.
So, what stock can generate this type of income?
Here’s one reason why I play GRPN…
This looks like a lot of movement, but if you look at the highs and lows, it’s mostly trading between 3.5 and 5.5 dollars.
These are the kinds of stocks I like to play with this approach.
GRPN is currently trading at 3.5 and its options expire every Friday, which gives me 52 income producing opportunities every year.
What happens if GRPN drops below 3.50? What are the risks?
Let’s say GRPN drops to 3.25 by Friday.
My breakeven level is 3.40 and there are two things that could happen…
I can exit my GRPN right before the close at 0.25 taking a 0.15 loss, and then resell another put for the following Friday.
In other words, I can allow GRPN to be assigned and then turn around and sell a call against my long position that expires the following Friday.
Or, I could simply exit and wait for a better opportunity or look at another stock.
Why do these big potential returns exit?
The risks of volatility.
For instance, what would happen if GRPN drops 2.00 and then goes back up 2.00 a few weeks later?
You would take a $1.90 loss minus the additional premium you bring in before GRPN moves back up.
There are risks, you just need to know what they are and how to mitigate them.
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