It’s safe to say that around Dividend.com HQ, we’re cautious about this market. Tom Reese, our Editor-In-Chief, detailed a lot of reasons to be cautious at these levels in the August edition of the Dividend Advisor, he reiterated and added to them in last week’s Sunday newsletter. In fact, TR, as he is affectionately known around here, also described how an improving economy could also contribute to lower expected returns back in early July.
That said, IF, we’re in for a flat to down-ish market, what’s a dividend investor to do? Can they still make money? Perhaps.
Dusting Off DerivativesI’ve written about a couple derivative strategies that are off the beaten path in terms of traditional dividend investing. Notably I dove into L.E.A.P.S and warrant strategies. I argued a little “desert” in one’s Dividend Diet might help bolster the staying power required to continuously and unwaveringly ‘eat’ the meat, potatoes, and vegetables of the diet, which should always comprise the vast majority of consumption.
Covered Calls: The Good, The Bad, The UglyThere’s a strategy that at times, can satiate the more traditional, low volatility, long term wealth building requirements of dividend investors – particularly in flat to down-ish markets. Like all derivative strategies, it has advantages, risks and downright infuriating qualities to it. Let me explain.
Let’s say that you believe the market–or a particular stock you own–will be flat to down-ish for, say, the next 12 months. This notion might be reasonably well supported based on current and historical data; it’s definitely not a hyperbolic chest pounding prediction like you might see on business cable shows. It’s actually quite boring, which does not drive ratings.
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If that’s your prediction, how might a dividend investor continue to receive not only their quarterly dividend payments, but in light of the lack of capital appreciation, even more return in a flat to down mark
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