Building wealth and passive income is a long term journey. But it can be shortened. Not by reckless trading (I tried and failed), but by buying assets which grow fast and pay growing income which can be reinvested and snowballed to ever growing larger sums of money.
This is a reason why we like dividend investing. If we pick good quality stocks, we will get paid for holding the Stock no matter what happens in the market. During Covid-19 mess many companies lost 50% of their value. For example, Altria (MO) was trading for $80 – $90 a share. Today? Today, it trades for $40 a share. Is it a problem?
Not, if we invest for income. If we invest for income, the goal is to hold our stocks forever and never sell (unless the company no longer meets the original narrative why we bought it in the first place).
So, we hold the stock through the thin and thick times and we get paid an ever growing income. Ask Warren Buffett.
To illustrate this point even further, let’s look at Altria company again. As of today, it pays 0.84 per share per quarter. If we own 100 shares of this stock, we will get paid $84 every three months. We got paid $84 when the stock was trading at $80 a share and we got paid $84 when the stock dropped to $40 a share. The dividend was flowing into our account regardless to the stock price.
Monetizing our positions
Dividend income is not the only stream of income we want. We want more. We want to fast track our income. Double it. Or even triple it if possible. How?
Fortunately, today’s financial markets offer us a cheap and easy access to other instruments which would allow us to create additional stream of income. Unlike dividends, which could be considered a passive income, this stream is not. It will require us to work for it. But personally, I would like to work this type of work than working for someone else. What income is it? Options. We are selling options around our positions and generate additional income.
Our goal is to accumulate 100 shares of a stock we like to own as soon as possible and once we accumulate, we start Selling Covered Calls. For example, if we start selling covered calls using Altria (MO) as underlying stock, we can collect additional, approximate, $30 a month. That is additional $90 every three months and $174 if we add dividends. It may not sound like much, but when reinvested and repeated for the next 10 years, it will grow to staggering $650 monthly income and 195% yield on the original cost. And today’s holding value of $4,680 will grow to $32,762.40 value (a nice 71.91% annual growth).
High yield dividend aristocrats
To speed our growth rate, we will be accumulating dividend stocks which are on a dividend aristocrats list. These are stocks with proven dividend track record. Many paid and increased dividends for more than 50 years. And many pay relatively high dividend and have enough income or earnings to afford it.
Below are stocks we consider worth buying (note, it is not our recommendation to you, we do not know your objectives and goals, and you must make your own homework and decision before you invest). These are the stocks we will be accumulating in our accounts to reach 100 shares as of July 2020: