The Big Problem With Dividend Investing
Dividend investing lets you to get a consistant monthly cash flow off of your investment in the stock market and is really popular. Getting a cash flow from your investment is always a good thing to do considering cash flow is what we all need to survive in the world.
First let us answer the question, what is income investing? Well many stocks pay out a small dividend to their shareholders. These stocks help the stock holder to benefit from a company that is making money.
So, by finding a list of dividend paying stocks that are all stable or better yet growing companies you could potentially get a very nice cash flow with very little work. 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 example say you want to invest $10,000 into a dividend stock that pays 5% annually that means you would get a cash flow of around $500 a year. To get anything liveable from dividends you are going to have to invest a lot of money.
So, can you actually get around this? Is there any way to make a good income off of your investments in the stock market without already being rich? Well one way to increase your return from dividend stocks is through selling covered calls.
Covered calls can make in a month what dividends make after an entire 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 dividend paying stocks.
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