This blog post was written by my friend Mr. Hippie de Land Rover [HdLR] or better known as Erik Flores. Erik and his wife Mrs. HdLR as well as their Mini. HdLR decided to retire in the summer of 2019, they both live in Switzerland for now and write the blog Hippies de Land Rover (in Spanish). Welcome Erik and thanks for sharing your dividend growth modified strategy :
Here Erik, I remember I started reading financial blogs long time ago, probably I was 18, I’m Mexican now living in Switzerland since 10 years, I was very interested in the stock market and technical analysis seemed to be very attractive, interpreting charts and thinking they can tell you when and at which price to buy-in sounded all good and easy! That’s when I bought my first stocks. As many, I lost everything haha went to zero, really!
Morally devastated and with the university studies pressure there was no time and no money to learn more and invest. I graduated from Electrical Engineering and started to work just to earn my first salaries which I burned all on parties and drinks -pretty normal, right?
All suddenly I decided it was time to think about the future and how I was going to make money in the long run. So I started reading about this strategy “dividend growth investment”. Boring! Was the first word that came out of my mouth and I wasn’t wrong, it wasn’t a movie like strategy, I wasn’t even buying and selling every day. It was like a grand father’s strategy but it was effective. I started earning my first income with dividends when I realized my account was growing instead of being blown out (like when I felt I was a trader haha) so I recognized the power of compound interests and how dividends could become a big part of my income.
I read Jason, on his former blog the “Dividend Mantra” and how he was doing and quit his job, well he did it, I found Allan’s blog as well and how his strategy is making him some cash while growing for the future, but, something was missing to me.
While dividend growth investment strategy is “secure” if you choose wisely of course there is something about it that I wanted to change and so, I started experimenting with different things until I found the right tweak to the strategy, here it is:
The Hippie de Land Rover way
Basically, as you may know, dividend growth investment is based on buying stocks at a good price, but not only any stock, stocks that pay a dividend, stocks that have proven to increase their dividend payment during the years and in that way you can keep up with inflation while you maintain your money invested in the companies.
If the stock goes up in price and you consider is going to rebound you can sell it, make some capital gain, and re-buy the stock at a lower price (always taking care of the transaction costs of course). With the money you make either from dividends and from capital gains you reinvest the whole and start creating the famous snow ball, as described by the guy from Omaha. This is pretty much straight forward dividend investing.
Now let’s come to what Hippie de Land Rover family is doing. We do apply two tweaks to the strategy. I have to warn you: You’ll need to have a basic understanding of Options PUT/CALL.
Profit from buying
Once we identify the stock we want to buy and its buying target price, instead of buying the stock, we do sell an PUT Option at that strike price. So we get paid in advance for “having the intention” to buy the stock.
If the stock reaches the strike price level at the expiration day we are committed to buy the stock (at the price that we wanted to buy in the first place) plus we keep the premium we received for selling the PUT option.
If the stock does not reach the strike price at the expiration date, we do not buy the stock but we get to keep the premium we received for selling the PUT option in the first place.
NOT BAD ah?
Profit for selling
Now that I own the stock and collect dividends from it, how do I continue to make more money from it? You just do the opposite, identify which selling price would make you the capital gain you want to get before selling the stock. Identify where the stock price is going to rebound in the opposite direction and sell a CALL option with that strike price.
That way you’ll get paid for “having the intention” to sell the stock at the price that will make you the capital gain you wanted in the first place.
If the stock reaches the strike price at the CALL option’s expiration date you’re committed to sell the stock at that price. You sell the stock, get your capital gain plus you get to keep the premium you received for selling the CALL option.
If the stock does not reach the strike price on its expiration date you keep the stock, continue to generate dividends plus you get to keep the premium you received for selling the CALL option. Then repeat the loop. That way you receive dividends plus the premiums for the CALL options.
Not BAD either ah? 🙂
We love the dividend growth investing strategy. We believe it is a great long term strategy and combined with this kind of tweaks can get you boosted benefits without any risk increase.
This is one of the strategies Mrs. HdLR and I are using to achieve financial freedom in 2019, when we will move to the country side to live in “El Rancho Hippie de Land Rover”. Still a long way to go but one step at a time will take us there!