The Major Problem With Dividend Investing
Income investing in the stock market involves buying dividend stocks in order to get an income from your investment. Everybody loves getting cash flow because that is what we all need to survive in this world.
First let us answer the question, what is income investing? Some stocks wil pay out a percentage of their earnings to their stock holders in the forum of a dividend. These stocks help the stock holder to benefit from a company that is making money.
So, by simply looking for a list of dividend paying stocks that are in stable strong companies you could potentially get a nice income off of it. This does come with one big problem, in order to make a good cash flow from the market this way you need a lot of money.
For instance say you want to make a minimum of $50,000 a year off of a dividend stock paying 5% a year, you would need at least $1,000,000 to be invested into that stock for you to do that, this is a lot of money, which means that you either need a stroke of luck, or you need to save up money for a long time.
So how can you possibly get around this? Is there any way to make a nice income with the stock market with less money? Well one way to drastically increase your income from the stock is by selling covered calls.
Covered calls let an investor make in a month what dividends will make in a year. Needless to say this can drastically increase your returns, but it does come with some added risk.
If you sell a covered call then you will be obligated to sell your stock at a specific price on or before a given date. For example if you sell the $50 call on a stock and it later goes up to $70 you would have to sell it at $50 missing out on $20 of potential profit.
While there are some downsides to selling covered calls is can be a great way to increase your gains when investing into high dividend paying stocks.
Tags: increasing returns when income investing, problem with dividend investing
This entry was posted on Monday, November 23rd, 2009 at 4:38 am and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.