A “10% Trade” can be a great way to accelerate your income from a high-quality dividend growth stock with a relatively low current yield.
The beauty is, in some cases, these trades can even deliver more income in “day one” of the trade than what the stock pays out in dividends over an entire year.
For example, consider the “10% Trade” I made with Walgreens (WAG) yesterday:
Within seconds of executing the trade I collected more income from WAG than what I’d collect over the next 12 months if I had simply bought the shares outright and held them for their dividend income.
But the “10% Trade” I made yesterday with WAG paid me 2.8% immediately.
That’s 27% more income than the stock’s “regular” annual yield, yet in a fraction of the time.
In addition, I was paid this income for the opportunity to buy shares at a discount to what they were trading for yesterday.
If you’re like me, and you would like to own WAG at a relatively depressed price anyways, then this could be an ideal opportunity.
Here’s how it works…
At the time I made my trade, Walgreens was selling for $62.42 per share and the October 18, $60.00 puts were going for $1.70 per share.
My “10% Trade” involved selling two of these puts… and there are only two possible ways this trade will work out.
On one hand, I’d get to generate a 15.2% annualized yield from Walgreens without even owning the stock.
That’s almost SEVEN times the stock’s “regular” yield of 2.2%.
On the other hand, I’d get paid $340.00 to buy Walgreens — a Dividend Champion with 39 years of consecutive dividend increases — at a discount to what it was selling for yesterday.
Up until recently, Walgreens has traded at enough of a premium to keep me away. But thanks to a massive sell-off last week (for “doing the right thing”), the stock pulled back to more reasonable levels.
While shares have since started to rebound, my “10% Trade” offers me the opportunity to own them at close to last week’s low, which is a good enough entry point for me.
All of this said, I’ll be happy however this trade works out. Let’s take a closer look at each scenario…
Scenario 1: WAG falls below $60.00 by October 18
If WAG falls below $60.00 by October 18, I’ll be obligated to buy 200 shares at $60.00 per share.
In exchange for my agreement, I was paid an instant $340.00 (200 shares X $1.70 per share) before commissions.
This money was deposited into my account immediately.
Taking this income into consideration – and subtracting out the commissions – my cost-basis will drop to $58.39 per share.
That’s a 6.5% discount to the $62.42 share price that WAG was selling for at the time I made this trade. I’ll take it!
Scenario 2: WAG stays above $60.00 by October 18
If WAG stays above $60.00 by October 18, the contract expires worthless and I get to keep the $340.00 in income (before commissions).
After commissions, this works out to a 2.8% return on what my purchase obligation would have been ($1.70 / $60.00) in 66 days.
If I can repeat these results over the period of a year I could generate a 15.2% yield from WAG without even buying shares.
This Walgreens trade is just one more example of why I’m such a big fan of “10% Trades” — especially when I can capture more than a year’s worth of income in “day one” of the trade.
If you’re looking to accelerate your own yield on high-quality dividend growth stocks with relatively low dividend yields, I encourage you to look more into these opportunities.
P.S. The reason I’ve gone public with many of my real-life, real-money “10% Trades” is so you can see for yourself how entirely possible it is to boost your annualized yield on high-quality dividend growth stocks. Just keep in mind that these trades aren’t intended to be specific recommendations for you as an individual. Everyone has different financial situations, risk tolerance, goals, time frames, etc.
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