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Today I’d like to show you how to generate your own dividend using an under the radar mid-cap stock named DaVita HealthCare Partners (NYSE: DVA).
Most investors don’t realize they can produce income on investments they already own. It’s one of the most overlooked sources of income in the investment world today and when coupled with a great company like DaVita you have a solid source of income for years to come.
DaVita HealthCare Partners Stock has managed to fly under the radar of most individual investors, but the stalwarts of investing have been well aware of the potential this company offers shareholders for years.
In fact, Warren Buffett and Berkshire Hathaway have led the way in locking up DaVita shares. Over the past two years Berkshire has purchased up to 37.6 million shares of the healthcare company for a 17.7% stake in the company. DaVita makes up roughly 2.2% of the Berkshire portfolio.
And our own Ian Wyatt recently recommended DaVita:
“The company is a well-known provider in the niche business of kidney care. Simply put, DaVita provides dialysis treatments to patients with kidney failure. The company currently serves 168,000 patients through 2,074 centers in the U.S.
With just 73 centers outside of the U.S., international expansion remains a growth opportunity for the dialysis stock. In the last year, the company has expanded its operations to countries including Saudi Arabia, Malaysia, Colombia, Portugal and Poland.
Shares of DaVita currently trade at around the same price where Berkshire recently bought more stock. Based on 2014 EPS estimates of $3.72, the stock trades at a P/E multiple of 18.
While the stock isn’t a bargain, it seems like a fair valuation for a stock with healthy growth prospects. If you’re seeking exposure to the healthcare sector, DaVita HealthCare Partners is a stock to consider buying at these levels. After all, you could do much worse than following in the footsteps of Warren Buffett.”
So what if I told you that you could own increase your income and return on DaVita by 75% or more each year? And what if I told you that you could collect this extra income every few months?
I’m referring to an option strategy known as a covered call, which allows you to collect extra income from a conservative stock like DVA.
When I mention “options” to many investors, they instantly think of risky investments that are only for speculators.
Nothing could be further from the truth.
An option is simply a contract to buy or sell shares of a stock at an agreed-upon price (the strike price) at a future date. Options can be used to control large blocks of stock for a small price. But they also can be used to earn income or reduce risk. Best of all, options are traded as easily as any exchange-traded stock.
With a covered-call strategy, you buy shares of a specific stock and then sell a call option on that same stock. By doing so, you agree to sell the position at a future date and price to another investor. In exchange for giving the other investor the right to purchase the shares at a future date and price, you earn a premium in the form of a one-time upfront payment – the extra income.
So how does a covered-call strategy work with DVA?
First, you need to own at least 100 shares of DVA. I say that because 100 shares of stock equal one option contract. Once you own the 100 shares, you’re ready to start generating extra income.
Now, let’s create the income-generating scenario: DVA trades at roughly $69 and has no dividend to speak of. By selling one covered call contract against 100 shares of DVA, you can earn an extra $100 every two months.
So every 60 days, you give yourself the potential to collect $100 against 100 shares of DVA. Annually that equates to $600 of extra income. By implementing a covered-call strategy, you’ve taken a conservative long-term investment, DVA, and boosted your potential income $6 per share creating your own dividend yield of roughly 8.7%.
Are you interested in earning more income from DVA? Would you like to earn more from other safe, blue-chip dividend stocks that you already own? If so, I’d like to help you.
My latest issue of income-based High Yield Trader is out Wednesday, so here’s your chance to get all the details on how I produce safe, consistent income using DVA plus six additional stocks. It’s a risk-free trial so what do you have to lose?
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