Covered Calls vs Dividends

Covered calls and dividends are two ways to create a consistent cash flow off of the stock market. But which one of these two methods is better? Well let’s look at what they each are.

Dividends are your share of the company’s earnings. When a company pays a dividend to their stock holders they are rewarding them for buying into the company by giving you some money as the company makes money.

You do not take on any additional risk by receiving dividends and these small payments can add up, especially if you own a lot of shares of a given company. However not all companies pay dividends and many that do have a very small dividend yield ratio.

Covered calls are different. When you sell a covered call you are giving someone else the right to buy your stock from you at a certain price sometime in the future. Normally this strategy pays you a lot more then dividends will, however you are also taking the risk of having to sell your stock and potentially miss out on a big move in the stock.

Even so covered calls too, can add up and greatly increase your return.
So which strategy is better? If you want to invest for an income what works best? Well, why not have both?

There are a ton of stocks out there that offer you high dividends and good option premiums as well. Using both strategies can drastically increase your return and if you combine them with fundamental strong stocks this can be a great long term approach.

For more on covered calls visit http://www.stocks-simplified.com/Covered_Call_Writing.html

For a list of dividend stocks visit http://www.stocks-simplified.com/List-of-Dividend-Paying-Stocks.html