August 2014 Income
While I only have three stocks that pay their dividends in August, all three pay well and make up a large portion of my portfolio. Last August I made $117.04. This August I received a total of $233.74, a increase of 99%. This amount brings the year total up to $1344.80, which is more than the total I received in all of 2013.
Options: Options have also treated me well this month. I bought to close put options on WFM for a profit of $28.93, COH for a profit of $37.93, CREE for a profit of $22.93, UAL for a profit of $34.93 (in less than three days!), CRM for a profit of $34.93 (in 7 days), and ANF for a profit of $42.93 (in 11 days). I also had a CSCO covered call expire worthless allowing me to keep the entire profit of $52.29. Altogether, I collected $254.87 in option income. I am still down for the year (-$298.53) but am slowly working my way back to positive territory. The losses completely stem from vertical credit spreads that moved against me. Maybe I’m dealing with recency bias, but I’ve stayed away from those types of options and have done great since.
While I have branched into options, I am not straying from a dividend growth investing goal. While the power of dividends will be really evident a few years from now, I have been investing using this approach (since 2011) long enough that I can already see the amazing compounding effects in play. Since I am young, I will be using options for some more speculative stocks and in order to supplement income.
Options are incredibly powerful, though. To see what I mean, consider this: In order to make $254 in dividends at a 3% annual yield, it would take $8466 invested for an entire year. To make $212 in a quarter I would need $33866. And, to make $254 in a month I would need $101600. My entire options trading account is only worth about $7000 right now; it was with that account that I made the $254. I didn’t even need to risk the entire amount! So, I’ll continue to sell at least two put options a month (more if I can close them early). The profit from these options will be collected and ultimately used to purchase dividend stocks.
| Symbol | Dividend Amount | Shares Bought | @ Price |
|---|---|---|---|
| AAPL | $152.98 | 1.5657 | 97.7072 |
| KMI | $71.51 | 0 | N/A |
| O | $9.25 | 0 | N/A |
I decided to collect the dividends as cash from KMI and O this month. Since I maxed out my IRA contribution already for the tax year, I wanted some free cash in order to have more leeway in managing future options. Dividend reinvestment has subsequently been turned back on for these stocks.
Total dividends for August 2014: $233.74
Total cumulative dividend income for 2014: $1344.80
Forward 12-Month Dividends: $2578.95
Total option income for August 2014: $254.87
Total cumulative option income for 2014: -$298.53
Full disclosure: Long all the above stocks
Good stuff. Thanks for sharing your dividend and option income for August. The growth year over year is amazing for the dividends. The power of compounding with some added cash too I’m sure. I’m still on the fence with options. I know many of the bloggers out there use it as a great tool for additional income. For me I have been looking at two basic strategies, the covered call and my first choice the writing of puts. The way I see it, writing puts will either 1) expire worthless and I keep the premium or 2) I’m forced to buy the shares if assigned which would be OK since I would only write puts on dividend stocks I’m looking to own anyway. One day I’ll try it out I’m sure.
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DivHut, Thanks! The investing has been getting really fun since I now have a few years worth of data to compare and really see the progress. As you can probably tell too, I love putting everything down into spreadsheets…and with those, the more data available, the better!
Options, when used properly, are a great tool to have. Your strategy about writing puts ONLY on stocks you would be willing to own is crucial.
Here’s a good example: Let’s say you wanted to buy BP at 47 (it closed today at 48.19). You would get paid $37 before commissions to buy 100 shares of BP at your price of 47 should it drop to 47 or below within the next 37 days. This means that your cost basis would then be 46.63. If you raised that price up to 48, you’d collect $67 with a cost basis of 47.33. BP isn’t that volatile a stock but companies like AAPL or even the blue chip companies before earnings would attract a higher premium. Definitely something to consider as a way to get paid to buy stocks at a price you decide on. The problem arises if the stock drops a ton: you’d be forced to buy at your previously picked but now higher price, but you’d still be better off than if you had bought the stock earlier. This way you get in at a lower price AND get to keep the premium to offset some of your unrealized loss.
Hellosuckers.net is a good site to follow to learn more about options. He’s making good money trading options against dividend growth stocks. The tastytrade and dough people that I mentioned in my Liebster nomination post is also a great resource to learn more about options.
I just updated this post because my CRM put option, which I sold for a credit of 0.50 on 8/15, dropped in value to 0.12 after the earnings report last night. I was able to buy it back, locking in a credit of 0.38, netting me after commissions $34.93.
Additionally, on 8/26 I was able to close my ANF put prior to earnings for 0.21, netting me after commissions $42.93. This also brought my options premium for the month almost to $254!
Great stuff on the dividend year to year increase. That’s awesome progress!
I have been reading a bit more about options this past year and think it might be a good strategy to use in combination of dividend investing. I need to read up more stuff on options though.
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Thanks, Tawcan. Options have definitely been an fun added source of income. They require a little more monitoring, especially if you want to manage the put options and not get assigned. However, if you want to buy 100 shares of a stock and would be happy to own it at a slightly discounted price compared to the market, then put options are amazing. Ultimately you should be comfortable buying the stocks you sell put options on because that is a very likely scenario.
Hellosuckers recently responded to my questions for the Liebster award. You can find his site on that blog post. He listed some excellent options resources that would be a good place to start.
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