How to Generate Income While Doing Nothing

In the investing world, generating income typically refers to slow, predictable payments from an investment over time. It may be a stock paying dividends or a bond with coupon payments. With options, generating income usually refers to selling options and collecting premium from option buyers.

The most common income generating strategy using options is the covered call. Well, technically a covered call includes a stock and an option. By selling a call against long stock you could potentially earn income from the stock (dividend payments) and the short option (premium). The two-fold income generation of a covered call strategy is one of the reasons it’s so widely used.

Of course, there are many different way you can generate income from options strategies. An options income strategy can range from obscenely complex to super simple.  Covered calls are generally considered simple, though they can be utilized in a more complex fashion if you choose.

Another income generating strategy used mostly by institutions is the short straddle. A short straddle is when a trader sells a call and put at the same strike in the same expiration. This trade is used when the seller believes the underlying asset is going to remain in a certain trading range.

Now, retail and smaller traders should never sell a straddle. It’s too risky and margin requirements are too high. However, seeing what straddles are being sold by the big players can be a good way to analyze assets.

For instance, if a bunch of short straddles trade in a certain stock or ETF, then someone with a lot of money believes that asset will be range-bound until expiration. In fact, this just recently occurred in the Utilities Select Sector SPDR ETF (NYSE: XLU).

Utilities are already known to be a slow moving asset. So, if someone with big bucks is selling straddles in utilities, you can bet the range is going to be extremely tight. In this case, the straddles don’t expire until January of 2019 – so utilities may remain in a narrow range for all of 2018.

To be specific, with XLU at around $56, the trader sold 1,100 of the January 2019 56 straddles for $7.37 per straddle. The trader collects over $800,000 on the trade and keeps it if XLU remains between roughly $48 and $64.

Okay, so this trade is not for the average investor – like I said, margin requirements would be insane. However, it really isn’t that risky. XLU doesn’t move that much to begin with and the trader has a very wide range to work with. The chance that utilities go crazy or collapse is basically zero. That’s not to say this trade is a guaranteed winner – not by any stretch – but I get what the trader is thinking.

If this trade idea appeals to you but you don’t want the risk or the margin requirements, you can pretty easily solve the situation by purchasing a call and put outside the short straddle. (In other words, go long an options strangle.)

Let’s say you purchased the 47 put for $1.25 and the 65 call for $0.50 in the January 2019 expiration. You’ve capped your risk (and your margin needed) and it only cost you $1.75 (off the $7.37 from the short straddle). So you’re still making decent money but you’ve substantially cut your risk. By the way, this short straddle surrounded by a long strangle has a name… the iron butterfly, and it’s a fairly popular strategy to use.

  [FREE REPORT] Options Income Blueprint: 3 Proven Strategies to Earn More Cash Today Discover how to grab $577 to $2,175 every 7 days even if you have a small brokerage account or little experience... And it's as simple as using these 3 proven trading strategies for earning extra cash. They’re revealed in my new ebook, Options Income Blueprint: 3 Proven Strategies to Earn Extra Cash Today. You can get it right now absolutely FREE. Click here right now for your free copy and to start pulling in up to $2,175 in extra income every week.

Source: Investors Alley

The 15% Yield Dividend Stock Set to Double

For the last three months, the value of Uniti Group Inc. (Nasdaq: UNIT) has been a real turkey for high yield stock investors. Since late July share owners have experienced a decline of the UNIT share price from the mid $20’s to a recent low under $14. With the recent earnings report out of Uniti, the stock now looks like a Thanksgiving dinner, offer a great yield and significant share price upside.

The suspension of dividend payments by Windstream Holdings, Inc. (Nasdaq: WIN) was the trigger event for the decline of the UNIT share price.

Uniti was spun-off by Windstream with an April 2015 IPO. Uniti is structure as a real estate investment trust (REIT), and in the spin-off received most of Windstream’s fiber and copper wirelines network. Windstream signed a 15-year (with options for extension out to 35 years) master lease with Uniti.

When Windstream announced that it would no longer pay common stock dividends, the immediate fear was that Windstream was in immediate danger of bankruptcy and that Uniti would stop receiving lease payments from its largest by far customer. The fate of Windstream and dangers to Uniti have both been overblown by online financial pundits and fear driven investors. Here are the pertinent fundamentals for each company.

Windstream made the decision to stop paying dividends for a couple of reasons. First, the market kept the stock’s yield in the high teens, not putting much value on the dividend amount. More importantly, the Windstream board decided that the cash being used to pay dividends would be better utilized to pay down the company’s debt load. Soon after the announcement of the dividend suspension, Windstream was sued by a vulture fund, claiming the company had broken its debt covenants with the Uniti spin-off. This claim was two years late and widely analyzed as blackmail to get a payoff out of Windstream. The company has fought back hard and has made strategic moves that will significantly improve the overall debt situation. Here is the financial situation for Windstream.

The company will generate $2.0 to $2.2 billion per year of operational income before depreciation, amortization and rent (OIBDAR). The rent is the $653.6 million annual lease payment to Uniti. The company spends about $800 million per year on capital expenditures. A little math shows the company has a $650 million cash cushion above the Uniti lease payments and capital spending required to keep the business functioning. While Windstream is a company that faces the financial challenge of developing new revenue to replace the declines in its traditional landline service, it is not a company on the brink of financial disaster. The company has put in place growth initiatives that will result in a reversal of recent revenue declines. The lease payments to Uniti can be viewed as a contract that must be paid if Windstream is to stay in business. The master lease cannot be changed in bankruptcy, should that highly unlikely event occur.

At the IPO, the Windstream lease accounted for 100% of Uniti’s revenue and earnings. Over the last 2 ½ years, the company has been making acquisitions that have driven the Windstream lease share of revenues down to 65%. The acquisitions have been fiber and small cell service providers. The number of Uniti customers has increased from one to over 16,000. Of greater importance, the purchased companies are growth businesses. During the third quarter, Uniti closed on the two acquisitions of Southern Light and Hunt Telecom. The company now has one of the largest pure-play fiber operating platforms in the country with the ability to deploy small cells, fiber-to-the-macro tower, dark fiber, enterprise services and E-Rate services. These lines of business are growing and will lead to growing free cash flow per share to protect the current dividend and provide for possible future dividend increases.

The current UNIT dividend is $0.60 per quarter, or $2.40 annually. The company will generate AFFO per share of $2.51 in 2017 and is forecast to produce AFFO of $2.67 per share in 2018. With the stability of its revenues, this is strong dividend coverage for Uniti. The company has already declared another $0.60 dividend to be paid in January.

See also: 5 REITs Raising Dividends in December

At $16 per share, UNIT yields a very high 15%. As the market sees continued stability of the cash to pay the dividend, the stock will climb to at least $24, which would give a 10% yield. If there is cash flow growth, the stock will again approach $30 in 2018.

UNIT and stocks like it would be a great addition to your dividend growth portfolio. You see, it’s not just important to include high-yield stocks that give you income now, but to hold stocks that can give you a high return from a blend of high yield and rapid share price appreciation.

That’s the kind of stock that I recommend as a core part of my high-yield income system called the Monthly Dividend Paycheck Calendar. It’s a system used by thousands of investors right now to produce average paychecks of nearly $4,000 in extra income every month. And it’s helped to solve a lot of income problems and retirement worries.

Quality high-yield stocks need to be a core component to your income portfolio. Not only do you get the high yields but you also enjoy share price gains as an added bonus. There are several best in class REITs just like UNIT in the portfolio of my Dividend Hunter service which features the Monthly Dividend Paycheck Calendar.

One simple plan takes minutes to set up, yet could pay all your bills for life. No longer will your mailbox be stuffed with ‘payment due’ envelopes.

This is our most powerful plan we’ve ever put together…and over 6,042 people have already used its recommendations.

There is still time to start generating $4,084 per month for life…but the window is closing…

Get up to 14 dividend paychecks per month from safe, reliable stocks with The Monthly Dividend Paycheck Calendar, an easy-to-use system that shows you which dividend stocks to pick, when to buy them, when you get paid your dividends, and how much.  All you have to do is buy the stocks you like and tell them where to send your dividend payments. For more information Click Here.

Source: Investors Alley