Today, investors have an incredible opportunity to earn double-digit percentage rates of income.
You simply have to look past conventional investments like bonds and mutual funds.
You have to look at unusual income plans like "digital utilities." As I’ll show you today, this plan is paying out safe income streams of at least 15 percent.
Traditional utility stocks have been a good friend to retirees and other income investors for generations.
You see, if you want indoor plumbing or a refrigerator, you have to do business with the municipal utility company. In many cities, these utility companies enjoy monopoly positions. The government-guaranteed profit turns these companies into income-producing machines. Because everyone has to use their services, the payments they deliver to shareholders are secure and safe.
These traditional utilities still have a place in the retiree’s portfolio. But there’s an alternative type of utility company you should consider.
These stocks are safe. They enjoy near-monopoly positions. And if you’re willing to try something a little different, you can collect annual income payments nearly four times as large as what you’ll get with traditional utilities.
Let me explain.
Intel dominates the semiconductor industry. Microsoft dominates the software industry. Just like you can’t turn on the light without using power from your electrical utility, you can hardly use a computer without using these companies’ products. And because digital utility stocks don’t have to contend with nearly as much regulation as traditional utilities, they can growth their profits much faster.
Now here’s the part where it gets interesting. Just like regular utilities, digital utilities pay reliable dividends in the 3 percent to 4 percent range. But right now, you have an opportunity to quadruple the amount of income you collect from these stocks without taking on any additional risk.
That opportunity is selling "covered calls."
In general terms, this strategy amounts to buying shares in safe, dividend-paying companies, like Intel and Microsoft, then selling "call options" to other traders. When you sell a call option, you’re giving other traders the right to buy your shares at a higher price.
The process is different from just buying shares. And it takes a little while to get used to the idea. But I’ve shown thousands of readers how to do it in my Retirement Trader advisory. Once you get the hang of it, it will change the way you see income investing.
Let me walk you through some numbers, so you can see how useful a tool this is if you’re looking for safe income.
Right now, you can buy Microsoft for about $27.50 per share. Let’s say you buy 100 shares, for a total of $2,750. Right after buying your shares, you can sell someone the right to buy them from you for $28 each ($2,800 total) anytime between now and late May. You collect $73 for selling that right. This $73 payment represents an instant 2.7 percent yield on your shares.
If Microsoft climbs above $28 in May, you’ll sell your shares for a modest capital gain, keep the instant 2.7 percent yield and pocket the quarterly dividend Microsoft pays along the way. All told, you’ll walk away with 5.3 percent in three months — more than 20 percent annualized.
If Microsoft does not rise to $28 per share, you simply keep that instant 2.7 percent yield, your 100 shares and the dividend. You can continue to collect those dividends. And you can make similar trades over and over again, generating a double-digit annual cash yield.
Readers who have followed my advice over the past couple years have been able to do just that. They’ve been able to turn a safe "utility" stock into 15 percent a year or more in income.
That’s about four times what you can collect by simply owning shares.
Don’t get me wrong. Regular shareholders of traditional utility stocks and "digital utility" stocks like Intel and Microsoft will do just fine over the coming years. Both investments will pay out reliable dividends.
But folks who are willing to do a bit more work can start earning 15 percent to 20 percent a year right now.
Here’s to our health, wealth and a great retirement,
— Dr. David Eifrig
This article was originally published on Feb. 22, 2013 at DailyWealth.com.