March 2017 is over.
It was quite fast. I almost haven’t noticed. And many things happened in March. Good or bad. But financially, I did well and actually better than expected; both in dividend income and options trading income.
This month, we received $85.86 dollars in dividends.
It is slightly less dividends than last month.
But it was more than in the same month last year. In March 2016, I made $70.46 in dividends. That is 21.85% increase year over year.
Definitely, this month was another success!
Our annual dividend income increased to $1,068.55 from previous $1,062.66 of annual dividend income. This is a great increase compared to $883.48 annual dividend income from 2016.
· ROTH IRA investing/trading strategy
Here is my investing & trading strategy I use in my IRA account. If you want to read about this strategy
In our ROTH IRA account we primarily invest into high quality dividend growth stocks. However, we allow exceptions and invest to higher risk, non-growth dividend stocks.
We reinvest all dividends using DRIP program. We will be using DRIP as long as dividend income will be below $1,000 per months or dividend period.
Once our dividend income reaches the limit of $1,000 dollars per the period (quarter, dividend payout, etc.) we will cancel the DRIP program and start re-investing the dividends selectively into either new stock holding, or existing stocks.
In our ROTH IRA account we also use options trading strategy called “triple play”.
We sell cash secured puts as long as we are assigned and buy the stock. With this strategy, we do not roll the puts unless there is a great opportunity to do so or the stock dropped in price significantly.
Once we buy shares, we keep them, collect dividends, and start selling covered calls.
We sell covered calls at the money, slightly in the money, or above the money. We do this as long as we sell the stock.
During this cycle, our DRIP program ensures that we reinvest the dividends.
For example, we sell puts against stock XYZ, we get assigned and buy 100 shares of the stock. Later, we receive the dividend, which is automatically reinvested. We buy fractional shares of the stock, for example 2.468 shares. Now we own 102.468 shares of the stock. While we are selling covered calls, when we get assigned the calls, we sell 100 shares of the stock. At the end of the cycle, we are left with 2.468 shares which continue bearing new dividends. These dividends are then reinvested back into the same stock, so our position is slowly growing.
Now, you may ask, what if you buy a stock and it drops significantly down, so selling covered calls down low may result in selling the stock at a loss and what would we do in this situation?
This is a valid question and no stock, even dividend growth stocks are not protected against a violent price drop. It may happen. In this case, we may temporarily stop selling covered calls and simply wait, or we may be selling covered call down low, but we will strive avoiding assignment and rolling those calls higher as long as we get above our stock purchase price where we can let the calls assign.
Once we sell shares via covered calls, we start selling puts again.
This options strategy is slightly different than the one we use in our trading account.
You may ask why doing this and not just keeping the stock to avoid losing capital gains?
Many times, the options income from puts and covered calls is a lot larger than the dividend itself. Also bringing income from options every week or two weeks will exceed any capital gains of the stock.
And we want options income too. We want to capture dividends and we want income from options. Most of the stocks are quarterly dividend paying stocks. That means, if we keep the stock and we will not be selling options, money invested in the stock will be dead money. There may be a small capital gain, but overall, it will be dead money.
· ROTH IRA dividend income
As I mentioned above my dividend income was better than last year. I made $85.86 in dividends and all dividends were reinvested back to the companies which generated them.
Here are some numbers:
Dividend Income = $85.86 (account value = $22,479.74 +1.23%)
The account is up 8.20% for the year.
Monthly dividend Income:
Last month, we purchased 100 shares of Energy Transfer Equity, L.P. (ETE) using triple play strategy. We sold cash secured puts with 19 strike and got assigned to the stock. We bought shares at $19 a share.
We were selling covered calls against the position with 19 strike. The calls kept expiring worthless in March. We will continue selling covered calls in April.
My dividend holdings:
(Click to enlarge)
· ROTH IRA options income
As I mentioned above we trade options in our ROTH IRA account to generate income which could be re-invested into dividend growth stocks.
We are in an “accumulation phase” when we deposit our sparse contributions of $50.00 dollars monthly and keep that cash in the account to trade cash secured options with it. This way we generate income from the options.
As of today, we only have approx. $3,017.70 dollars in ROTH IRA available for options trading. The goal in 2017 is to reach $6,000 available dollars for options trading.
With that money available for trading, in January 2017, we generated $58.00 dollars income from options 1.92% return on invested capital.
In March, we had options trades opened using stocks Ensco plc (ESV). We didn’t have to do anything with those positions.
We traded options using Energy Transfer Equity, L.P. (ETE). We also decided to add an Iron Condor using Seagate Technology plc (STX). We had to roll the trade once in March to avoid assignment. Unlike ETE trade, we do not want assignment of this stock as of now.
· Our dividend investing outlook
We saw the market getting to a complete halt in March. It even reversed and dropped.
We saw the first dip of more than 1% since election.
Many saw this as a positive event and I tend to agree with them.
The dip was bought again by investors but there weren’t enough buyers to move the market to higher highs. It still may happen if the purchase continue, but as of now, we are at a cross road.
Will the market go higher or are we seeing a creation of a new lower high?
Here is what I am seeing:
If the market fails to break the thin grey line, we will most likely see a correction.
While many may freak out. I am actually happy about it.
I keep telling to all dividend investors who are not comfortable with the current market that it doesn’t matter to them where the market is.
Of course, this depends on where you are in building your dividend portfolio but if you are at the beginning or even middle of the accumulation phase, you do not have to worry about crisis, panics, sell offs, or any sort of disasters.
As a dividend investor, you keep buying and building your dividend income. And when stocks drop even 50% you should welcome it with open arms and keep buying, keep reinvesting your dividends.
I have heard investors saying that they do not want their portfolio to drop 40 or 50% and then wait for a long term recovery. They want to time the market, sell now and buy back when the market drops. I have watched investors selling in August and September 2016 when the market was at all time high.
Back then the market was at 2120 and they couldn’t stomach it. They kept selling (trimming) their positions.
Today, the market is at 2340.
220 points higher!
So, you sell now and keep waiting for a drop, sell off, or correction which may not yet come. It may happen in six months from now. And you will be sitting sidelines depriving yourself of dividend income which could have been reinvested.
And if that really happens, I do not mind that my portfolio value drops.
I do not follow my portfolio value.
I follow what my dividend income is.
When building a dividend growth portfolio, you should always have in mind what was the reason you started building that portfolio.
In my case, it was income.
So if I invested $22,000 dollars to stocks which pay me $1,070 dividend income and there is a sell off and my portfolio drops to $9,000 dollars but keeps paying me the same $1,070 dividends, should I be concerned about the value?
No, my reason was income. And with the value drop my income hasn’t changed. I do not have to worry at all but on the contrary, I will be very happy that my dividends are now buying a lot cheaper stocks!
Many of my stocks in my dividend portfolio not only recovered well from the 2008 Great Recession, they actually increased dividends! Why selling them then?
Let me know what you think!
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market commentary
Trumpfear
Lately, I was quite busy and actually not in a good mood, so I wasn’t publishing my trade adjustments against US Steel (X) and Seagate Technology (STX).
I was able to roll those trades quite successfully last week although both stocks were losing after a big selloff in Wall Street.
And tomorrow, it seems we will see yet another selling as fear returned back to the market. It was quite obvious to me that Trump is not going to win nor deliver any of his promises. He thinks it is a piece of cake to govern the country of 300 million people.
However, I was riding the optimism others were happily sharing.
Looks like, after Trump’s loss of repealing Obamacare the same people now are in fear that he might have the same issues to deliver his other promises.
Duh!
Unless Trump becomes a supreme and only rule of the United States, a sole dictator (who he for sure is and thanks God for the Constitution!) he has to negotiate. And although he makes things look like he is a winner, he actually is not.
He calls himself a great negotiator who masters an art of a deal, but a recent video I saw today following him since 1975 unto 1990 show that he actually was quite bad in making deals.
Watch for yourself and make your own judgment.
[fvplayer src=”https://hellosuckers.net/wp-content/uploads/movies/Donald Trump.mp4″ splash=”https://hellosuckers.net/wp-content/uploads/2017/12/” width=”450″]
So, the optimism seems to be gone for some time and we may see some selling coming.
It may be a good thing. I depends where you are and what your plans are. Mine are well defined. I trade options and invest into dividend stocks. With options I can trade both sides. But I trade strangles and large and violent moves are not very strangles friendly.
Yet last week I could roll my trades however, my put sides are still in the money and in danger. What danger? A danger of assignment. The deeper they get the greater danger of early assignment. If this continues, I will have to start enlarging my expiration time from weekly to two or three weeks. I will see next week. If selling takes over, it will be a sure thing.
As a dividend investor I actually welcome this selling. I will be reinvesting my dividends and buying more shares for less. What a gift!
I still look at my dividend investing from the next 25 years investing horizon perspective. And this selling, or even Trump rally is quite insignificant.
For some time I have been recording events in the S&P 500 chart. Just for curiosity. I do not do it to predict the market, I do not do it to look for reasons and excuses. I do it just as a time stamp. I want to look back and see how futile we investors and traders as a crowd sometimes are:
This “event recording” became my new pet. When I see all the talking heads predicting the disaster and it doesn’t happen I am laughing. And also when they are too optimistic, predicting new highs, market going to the moon and it crashes, I am also laughing.
Tomorrow we may see Trumpfear in the market.
I will be rolling my existing trades lower and manage them through the turmoils in my trading account. In my ROTH I will continue holding my dividend stocks and trade options (Iron Condors, cash secured puts, covered calls).
I wish you all success in coming week. Stay calm and do not panic. There is no reason for it. There never will be and never has.
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