Double Your Dividend Yield: A Covered Call Strategy for Income Investors

The Components of Total Return The total return on a dividend stock has two main components: (1) the dividend yield and (2) the change in stock price. Most of the time both of these components have a positive effect on your total return. However, a significant price decline can literally "wipe out" years of dividends, resulting in a negative total return. The price fluctuation in a dividend stock cannot be ignored. While dividends have accounted for over 40% of the total annual return of the S&P 500 since 1926, over 100% of the returns over the past 10 years were attributed to dividends (meaning the return on the underlying stock was negative). That said, dividend stock investors that would like to enhance the yield on their investments (to help offset the potentially negative fluctuations in stock price) should consider implementing a covered call strategy. A covered call strategy will add... Read more