How would you like an 11% cut to your paycheck? That's
exactly what's happened to income investors who own long-term
At the beginning of the year, 30-year U.S. Treasury yields
(NYSEARCA:TLT) were above 3.90% but have trended lower. That's
not what income investors who piled into long-term Treasuries were
expecting. Their plan was to capture more income by owning
longer-term bonds. But it hasn't worked out that way.
What about stock dividend investors?
U.S. stocks (NYSEARCA:SCHB) trading near all-time has meant
lower yields for new investors. A similar thing happened during the
dotcom boom of the late 1990s when dividend yields bottomed
Dismantling the False Theory of Stock Picker's
Even for buy-and-hold types who say none of this matters,
the S&P 500′s long-term dividend yield has been in 33-year
decline. The S&P's dividend yield is around 1.91% today
versus 5.3% in the early 1980s. Put another way, today's S&P
500′s (NYSEARCA:VOO) dividend yield is 63% less today compared to
the early 1980s!
The income investor (Nasdaq:FKINX) has a few choices. They can
keep doing the same old thing that everyone else is doing, hoping
for better results. Or, they can fight the vicious low yield
cycle with an equally vicious arsenal. What am I referring to?
The covered call strategy.
Selling covered calls is a conservative income strategy that has
proven itself over and over again. Since June 1988, the CBOE
BuyWrite Monthly Index (ChicagoOptions:^BXM) has generated a 961%
gain compared to a 593% gain for the S&P 500. Furthermore, the
BuyWrite Monthly strategy consistently outperformed the S&P 500
during periods when stocks declined. Besides providing a cushion to
stock investors, selling covered calls provides an additional
source of monthly income. Is it any wonder why we've applied
this time-test strategy to an all ETF portfolio that owns a variety
Since introducing our
Mix ETF Portfolio
in Feb. 2012, our monthly covered call strategy has raked in over
$22,300 of monthly income. We base that amount on our all-ETF
model portfolio with an assumed value of $100,000. Each month, we
alert readers about our targeted ETF tickers and strike prices
along with expiration dates.
Since call options prices are impacted by the market's
perception of risk (volatility) along with time value, the actually
monthly dollar amount garnered from selling covered calls will
vary month to month. Nevertheless, we've been able to average a
steady monthly income stream of around$825 over a 27-month span.
And here's another added bonus: The potential of capturing even
more money from the dividend income from the underlying ETFs
we hold inside the Income Mix Portfolio!
One more hidden gem of the covered call strategy is the
ability to convert non-income producing assets like gold and
precious metals (NYSEARCA:GLTR) into assets that produce positive
cash flow. Large gold ETFs like the SPDR Gold Shares (NYSEARCA:GLD)
have a very liquid options market, giving the income investor
plenty of choices with strike prices and expiration dates. Owning
physical bullion in a vault won't give you that kind of financial
In summary, the monthly covered call strategy is an effective
tool for income and ETF investors alike. It's a conservative
strategy that more investors should be using to successfully
fight against today's low yield cycle.
Profit Strategy Newsletter
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and Technical Forecast. In 2013, 70% of our weekly ETF picks
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