Dividend Income Plus
Dividend Income Plus is a unique, elegant, and sophisticated strategy that you won’t find anywhere else.
- The strategy taps into the consistency and predictability of dividends to generate quarterly income, or compounded portfolio growth.
- The strategy employs a two threshold hedge to reduce downside risk.
- We start by buying a concentrated basket of blue-chip, dividend paying stocks, which can include stocks such as AT&T, Verizon and Chevron. Our robust fundamental analysis identifies stocks with strong fundamentals, analyzing the following metrics:
- Sales growth
- Earnings growth
- Free cash flow
- Dividend coverage ratio
- Pre-tax profit
- Return on equity
- We approximately quadruple the stock holdings and quarterly dividends through leverage.
- We then hedge the stock positions with options to handle a 25% to 30% correction of the stocks.
- Within the first 30 days of a market correction, draw-down is typically 30% less compared to just buying and holding the stocks.
- After 60 to 90 days of a market correction, assuming the market stays depressed, the portfolio typically recovers 85% to 100%, as the hedges mature.
- Portfolio recovery does not require a full market recovery.
- Downside draw-down is bounded in the case of a black swan crash event.
- For additional information and quantitative data and graphs on how the hedges performed during past corrections, such as the COVID-19 crash, please contact us.
- Targeted returns for the portfolio are 8% to 10% annually, after commissions.
- This strategy has advantageous tax characteristics where the gains are classified by the broker as qualified dividends. Qualified dividends are taxed at the capital gains rate, which is usually lower than most investor’s earned income tax rate. Please talk with your tax accountant for the specific details of how qualified dividends are taxed.
- This strategy has advantageous liquidity characteristics. The investor can exit this strategy at any time with no negative impact.
- Summarizing, this strategy isolates, levers-up and extracts the quarterly dividends, and then reduces a substantial portion of the downside exposure through hedges.