Tuesday, June 5, 2012

RENT

Dividend Stocks for rent:


If you own stock in a company that has reliably paid a dividend over a long time and the stock price is volatile, you own a stock that can you can rent.  When you sell covered calls, you rent your stock with an option to buy.  You will find stocks to rent by looking for dividend machines.   Your research will reveal companies that are not quite dividend machines but are darn good companies that pay dividends.
You need to determine if the stock you like is a dividend machine or not.  If the company just misses on one or two of the dividend machine criteria, consider renting it with an option to buy.  That is a covered call.   Someone pays you rent with the option to buy at a set price.  You can also earn rent on dividend machines, but because the dividend machine criteria are so high, it is difficult to find one with enough price volatility to provide rent (covered call income.)
The difference between a dividend machine and a dividend company with call potential or one that I rent is important because you always want to keep risk at a minimum.  Moreover, knowing the difference will change how you determine if a renting your stock (selling a covered call), is to your benefit.
Covered calls really do make a huge difference in creating spending money.  If you take the time and energy it takes to manage the income portion of your portfolio, you will greatly benefit from learning how to rent your stocks for more income.  Learn how to sell covered calls.

RENTING A DIVIDEND MACHINE

When you sell a covered call on a dividend machine, you do not really want to lose the stock.  You have to get a record gain on that stock if you are going to rent it with an option to buy.  For instance, when the strike price is higher than the stock’s 52 week high, you might be willing to lose a dividend machine.  You can set your personal criteria such as a minimal 20 percent gain.   Never be afraid to lose a stock at a profit.  Another opportunity awaits you.

RENTING AN ALMOST DIVIDEND MACHINE

When you rent your stock in a dividend company that does not meet the high hurdle as a dividend machine, it is o.k. if you lose it as long as you have a gain and a lot of income from the covered call.   After all, it is only a dividend company and not a dividend machine which means it may not increase your income and could cut your income.   Dividend machines do not cut your income; they increase it.  However, dividend companies that I call almost dividend machines may very well cut your income.  I like these almost dividend machines to have a history of continuing to pay income even though it may have been at a reduced rate.    Some income is better than no income.
You want income from these companies so you might be willing to sell an option with less capital gain and more income.   You can get a five or six percent yield on the call income and still get the company’s dividend.    If you lose it, always make sure you lose it at a price greater than your cost basis.  Again, you never have to worry about losing a company, because you have a gain plus the income.  You always have to worry about keeping the company and the price drops and you are tempted to sell at a loss.  The only way to keep losses like this at a minimum is to make sure the companies we pick are as solid as their fundamentals suggest and they will continue to pay us income even during difficult times.
Every week when I profile my weekly dividend machine, I always explore rental options on that company.  More often, I write about companies that just miss the dividend machine hurdle and that provide a lot of rent.   Search my blog to read about these covered calls ideas.

Very Truly Yours,

TheMoneyMadam
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