reader knows that I'm a huge fan of dividend growth. I think it's
the best strategy for building wealth and collecting income along
I like dividend growth for its simplicity. All that's required
is finding high quality stocks led my executives that are
committed to the shareholders. Just buy and hold a portfolio of
dividend growers for the long term, and watch your portfolio
As the years roll by, rising streams of cash roll in. Because
investors are willing to pay a higher price for more income, the
share price rises with rising dividend payouts.
Over time, you find yourself owning an investment with a high
yield on your cost basis. You also find yourself owning an
investment worth significantly more than your cost basis. And
this is the very essence of wealth creation!
But dividend growth isn't perfect. The best dividend growers
frequently fail to provide high yields. That's because companies
that are growing their dividends are doing so because they are
growing their business. And that means reinvesting some cash in
the business, and distributing some to the shareholders.
As a result, many of the best dividend growers have yields of
just 2 - 4%. This is an obvious shortcoming for investors
demanding immediate high yield.
Consider one of my favorite dividend growers
McDonald's Corp. (
. The company has raised its dividend every year since 1976 - a
trend that's likely to continue.
I first recommended McDonald's to my
High Yield Wealth
readers in January 2011. Over the past 32 months, the quarterly
dividend has increased 26% to $0.77 a share. On our cost
basis, McDonald's yields just over 4.1%.
McDonald's share price is also up roughly 28% during our
holding period. At the current market price, it yields 3.2%.
That's better than the average company in the S&P 500. But it
For some income investors, McDonald's lower current yield is a
turn off. But you can have the best of both worlds - dividend
growth and high yield from the outset.
By overlaying a covered call strategy on McDonald's, you can
immediately double your current income. At the same time, you
retain your exposure to the wealth-building characteristics of
With a covered-call strategy, you buy (or already own) shares
of a quality company like McDonald's and then sell an
out-of-the-market call option.
By selling a covered call, you agree to sell your McDonald's
shares at a future date and at a specific price (the strike
price) to another investor. In exchange for selling this right,
you earn a premium in the form of a one-time upfront payment -
the extra income.
Let's assume you own 100 shares of McDonald's. Shares trade at
$96 today. An October 100 call option sells for $0.49 a share. By
selling one covered-call contract on 100 shares, you earn an
extra $49.00 (100 times $0.49).
McDonald's is a low volatility stock that's in mild downtrend.
The probability is low it will be called over the next two
months. And two months from now - and every two months thereafter
- you repeat a similar transaction.
This means you can collect roughly $49 of extra income every
two months. Over the next 12 months, you'd collect an additional
$294 ($49 times six). Add $294 to the $308 you'd receive in
dividends, and your annual McDonald's income soars to
In short, you've just taken a blue-chip dividend grower with a
3.2% yield and pumped up the cash flow. And that's how you can
collect a 6.3% income stream from McDonalds.
Today I've given you a short introduction to increasing your
income using covered calls. If you're hungry for extra income, I
invite you to join Ian Wyatt and options expert Andy Crowder this
Thursday, August 22 at 2:00pm ET for a free live teleconference.
The live event is titled
60 Second Dividends: Instant Income from Blue
Ian and Andy will share all the details on how to use this
unique income investing strategy every month to collect extra
income. The best part is that you can use this strategy on stocks
that you already own - including the biggest blue chips.
The event is filling up, so you need to act now. Just
click here now
to reserve your seat at the live investing seminar.