Price Action

We like high yield dividend stocks because their share price tends to rise heading into their ex-dividend date—the date shareholders qualify for the dividend. The stock then sells off and the rise begins a few days later, all of this somewhat dependent but also somewhat independent of market conditions.

There are several ways to play this market reaction to a high dividend-yielding stock.

Let’s look at the play we have on the board, Blackstone Group (BX).

Triple Play Income Stock 

And a great “Triple Dividend” play is with the company Blackstone Group (BX).

Blackstone is one of the most successful publicly traded private equity and financial management firms. They have recently converted from a public partnership to a corporation and raised their dividend.

They are generating additional free cash flow as well have liquid option chains making it an ideal stock to implement a “triple income” strategy.

The stock price is on a nice gentle upward trend making it ideal to trade the Triple Play Income strategy.

First We Sell Put Options to Collect Cash

We start out well ahead of the ex-dividend by selling put options to collect premium before we ever receive a dividend payment.

Our goal is to collect cash week after week before and after the stock’s ex-dividend date … the date when the stock trades without its dividend.

We can sell puts on a stock like Blackstone every week collecting premium to build up our cash position before we even own one share of stock.

Buy the stock and sell covered calls

Then, just ahead of the ex-dividend date, we buy shares of the stock and sell a covered call to collect even more premium.

To collect a dividend, you must own shares of the stock “before” the ex-dividend date.

The stock goes ex-dividend and we earn the dividend that is usually paid out 15 to 20 days later.

By selling put options we collect cash before the ex-dividend date.

Then we collect the dividend and then we go back again to collect cash after the dividend by selling a covered call on the stock we own.

Live Trade Case Study

Here is how this strategy worked recently trading Blackstone.

Blackstone was scheduled to go ex-dividend on February 5^th.

On January 4^th Blackstone was trading at $64.25

We sold a BX 15 Jan 63 put and collected $1.09 per share or $109 per contract (100 shares).

On the day before expiration (1/14), BX hadn’t moved much and was trading at $64.50. We closed our position early buying the put back for $0.05.

We now have $1.04 or $104 per contract in our pocket.

Then on January 19^th with the stock trading around $64.50 again, we sold a BX 29 Jan 64 put for $2.00 or $200 per contract.

Two weeks later at expiration, BX was trading at around $67 our put expired worthless.

We kept all of the $2.00 or $200 per contract.

We now had $3.04 or $304 per contract in our trading account.

On Monday, February 1^st, 4 days before BX went ex-dividend, we purchased 100 shares of Blackstone stock for $68.50 and at the same time sold a BX February 12^th 70 call option for $0.86 or $86 per contract.

Blackstone went ex-dividend on February 5^th and we earned $0.96 per share dividend which was paid out on February 16^th.

On February 12^th, BX traded up to $71 and we were called out of our stock which we sold for $70 (remember the 70 call we sold).

That meant we collected an additional $1.50 of cash from being called out of the stock.

We collected a total of $4.86 or $486 (100 shares) from the put and call premium we sold as well as the $96 of dividend.

Add on top of that the $1.50 or $150 from the sale of BX stock when we were called out and you have a total of $6.36 or $636 of cash collected in roughly 30 days.

Talk about a cash haul.

Total Cash Collected: Here is the math. 

$1.04 Premium: The first put we sold on January 4^th.

$2.00 Premium: The second put we sold on January 19^th.

$0.86 Premium The covered call we sold when we bought BX stock on February 1^st.

$0.96 for the BX dividend earned on February 5^th and paid to our account on February 16^th.

And finally …

$1.50 profit from selling BX Stock (70 call minus $68.50 that we purchased the stock).

THE TOTAL

Total Cash Collected:  $1.04 + $2.00 + $.86 + $.96 = $4.86 or $486 per contract.

$4.86 is 5 times the $0.96 dividend if we had simply owned the stock and did not sell any puts or call options.

With that we generated a “dividend on dividend” of $.96 cents, a 5.4% return or 21.6% annual yield … 5X the dividend paid by the company.

Add it all up and that’s over $636 in extra cash income just waiting for you.

And do that each and every month and you could be collecting an additional $7,632 of cash every year.

And that was with 100 shares of BX stock selling ONE option contract.

Imagine if you sold 3 contracts and 300 shares of BX stock…over $1,908 of cash in a month.

The Approach to Double, Triple or even Quadruple Your Income Investments

With the Triple Play Income strategy, there are no limits here – you can do this every week, every month, or as often as you want.

With a minimal amount of time and effort, you can collect a triple dividend.

This is a good example of how an income investor can generate significantly higher yields while at the same time preserving capital.

And the more often you cash out your multiple dividends, the more money you’ll put in your pocket.