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Income Investors' Strategy
When I was a child, I have always wanted to fly like a bird. My favourite birth is the eagle because I want also to dominate the air like the king of the high places (eagle). Then when I turned into an adult, I just wanted to work in the finance (accounting).
Though I have never focused on the financial markets as such, I became very curious about trading and investing in 2003. That was it. I have been upgrading my status since then, and my goal is to become a fully fledged sophisticated market player.
The reason why I start this article by telling you a bit about myself is because I do not want you to limit yourself or caged yourself into a box.
That is why I want to talk to you about income investors' strategy. May be you have probably heard about it or involved in it already. Many armchair investors are already doing it. May be this is your turn too. Let's get started.
Number One Income Investor's Strategy
The number one income investor's strategy is to buy and hold high yield dividend paying companies over the years for consistent quarterly dividend incomes.
It sounds good and simple. Yes or no?
However, do not get carried away because to do it successfully, one must become a better investor. So a company is quarterly paying 5 cent a share dividend, and one is holding 40000 shares. Before tax, this is a cool 5 cent x 40000 = $2000 per a quarter provided that the company is paying 5 cent per share and quarter. That is not always the case.
That is also $2000 x 4 = $8000 per annum before tax. Of course, one that owns the lion share of just 100000 shares, that would give us a cool $5000 per quarter and $20000 per annum before tax; just sitting in an armchair without lifting a finger.
What a couchy life style?
Now you can become a bit imaginative by doing the maths with different numbers. Well the effect is the same. That smile will be widen a bit more.
So far, it seems straightforward and most people will confidently say that it is easy and they can do it. No problems.
The question one must after that is how can one do it without losing? It is just one part of the story I have told you so far, but the truth is that there is the Yin and also Yang.
So in the first example, I told you that you are buying and holding the stock for years with the risks and rewards that come with it. But there is more. There is another way to do it and here it comes.
Ex Dividend Date Income Strategy
The ex dividend date is the date when the right to earn the dividend expires. So company is paying 5 cents per share dividend on the 24th January 2020, but the ex dividend date is 12 December 2019. That means who so ever is holding the shares up to 11 December 2019 is the rightful beneficiary to whom the declared dividend is paid. Got it?
All investors that buy the stock on the ex dividend date or later will not receive the current declared dividend.
Therefore, I can just come and buy 100000 shares one or two days before the ex dividend date and hopefully sell it profitably on the ex dividend date or two or three days later.
With that intelligent short term buy and hold investment strategy around the ex dividend date, I will get a cool $5000 income in that quarter. Do not forger that it always the Yin and Yang. Again on this occasion, everything did work well.
The difference between the second example and first is one did not even hold the 100000 shares for years, but just for few days around the ex dividend date. Really cool isn' t it? I would say: nice one and thank you very much.
As you can see, some wealthy armchair investors are always playing the ex dividend date income game throughout the year. Well, they do not have to apologise to me as long as they playing with the 5% of their net worth.
Why? It is because of the Yin and Yang risk and reward in the financial markets dealing.
Of course, one can look for blue chip stocks that are paying bigger and better dividend on quarterly basis. Now you understand why your neighbour never go to work, but keep driving the latest Ferrari.
Combining Dividend And Growth Income
That is where I come in. I love growth income big time because when one gets it right, the gains are exponential.
Imagine you recently bought Pinterest in 2020 at $10 like me, and as I am writing this article, it is near $20. That is 100% capital gain without blinking. No company will offer you 100% dividend yield. So in that instance, one doubles the initial capital because Pinterest stock rose from $10 to $20 within three months.
Obviously, it is really interesting to multiply by two or five or even ten times the initial capital, and at the same time get those quarterly dividends. Boom Boom!
However, it is more challenging. One must find undervalued stocks and buy them before they start galloping (rising). Those companies ought to regularly pay high yield dividend. So the exercise consists of buying in a timely fashion undervalued dividends paying companies to increase gains in medium to long term.
Once one sells the stock to capitalise on the growth one will not earn dividends at the next round unless one repurchase more share. Nevertheless, one can look for another growth and dividend play company and buy and hold it at the right time. In this case the market timing and value assets selection are essential.
Just remember the ex dividend date so you do not miss out on the juicy dividend.
Those tactics may be a bit challenging for many ordinary investors. They are more for advanced or sophisticated investors. One that also wants to reduce the tax bill may use the ISA account in UK or its equivalent in one's country of residence.
Alright, that is all I want to share now. If you have any questions or comments, please post them at 24stocktrader YouTube channel and in due course, I will answer you or post a relevant educational video.
Those gains can rapidly increase when one deploys dividend and growth income investing strategy like a sophisticated investor. One should not also forget that even income investing does carry many risks that can make one lose even the initial investing capital. One that controls the risks, and time dividend income investing correctly will surely be rewarded.
Now I have a question. Are you ready to start the journey of an income investor?
That is it folks. Thank you for reading this article. I hope it has made your eyes pop out, and you like it. If that is yes, please share and bookmark it. Also, please say few good words about us in your favourite trading and investing forums. I will really appreciate that.
This article is written by George Beaulieu Founder Of Stochastic-macd.com Website