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Income stocks are basically high dividend paying stocks. The stocks that do pay a good dividend will create a monthly income for the investor who holds the security.
Many investors who actually use this strategy could be making a lot more in terms of monthly income. Here are 3 very powerful strategies which you can utilize to increase your returns when income investing.
1. Look At The Fundamentals of the Actual Company
It is tempting to get in a few great dividend paying stocks just because they are paying a huge dividend to their shareholders. However if the company is not sound and growing there is really not much of a point to doing this.
After all a 10% dividend seems generous, but if the stock is going to go down 70% during that time it is still going to be a bad investment.
On the other hand you can take the time to only get into strong companies that have have a real future. This way you can win two ways. You can win with the dividends and you can win as the stock appreciates in value.
It just seems like a wise decision to me.
2. Sell Covered Calls
Dividends are not the only way you can get a cash flow from your stock. You can also make money by writing covered calls. This strategy might be looked at as more dangerous because you may have to sell the stock, but the risk can be worth the reward in my opinion.
So what is this strategy? When you start covered call writing on your stock you are giving someone else the right to buy your stock at a certain price on or before an expiration date.
So if you own a stock which is trading at $63 and decide to sell the $65 call for $4 you make $4 instantly, but you are now obligated to sell it at $65, and you will remain obligated to do that until the call expires.
This can sometimes work against you if the stock makes a large upward move and you get called out missing some of the potential profits you could have made. But the strategy can definitely be profitable enough to take on that risk. Of course not everyone feels that way so the strategy is not for all investors.
3. Sell Put Options to Enter it
If your goal is to make cash flow off of your stock, why not start off the trade by making some money? whenever you sell a put you make money to take on the risk of getting into a stock. So if you are only selling puts on stocks that you do not mind getting into what can be the problem?
These strategies could definitely be used to increase the returns you can make when getting into great income stocks. They are not for everyone, but they may suit you if you want to make a little more out of your stock positions.
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