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How to Turbo Charge Your

Dividend Paying Stocks

This Little-Known Strategy Will Turbo-Charge Your Dividend Stocks

Just because the Federal Reserve continues the process to normalize interest rates, don’t expect the “glory days” of
generating income, at least in the traditional sense, returning anytime soon.

In fact, while the Fed has raised short-term interest rates five times over the past two-years, banks have all but refused to
pass on higher savings rates to its depositors.

The Fed influences short-term interest rates by setting the Fed Funds Rate.

The Fed Funds Rate is the interest rate at which banks and other depository institutions lend money to each other, usually
on an overnight basis. The law requires banks to keep a certain percentage of their customer’s money on reserve, so
depending on the Fed Funds Rate dictates the cost of funds.

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Generally speaking, when the Fed Funds Rate is raised, banks typically charge their customers higher interest rates on
consumer loan products.

Credit cards, home equity lines of credit and adjustable mortgages are a few of the more popular consumer products
that are affected by moves in the Fed Funds Rate.

I’m sure if you maintain a revolving balance in one of these products, you’ve seen an increase in the interest rate charged
shortly after the Fed Funds Rate was increased.

But what’s also supposed to happen when the Fed raises short-term interest rates is that savers get rewarded too.

Typically, when the Fed hikes short-term rates, savers can earn more on things like Savings and Demand Deposits, Mon-
ey Market Accounts and Certificates of Deposit (CD).

In other words, on traditional interest interest-bearing accounts your parents and grandparents once relied upon to gen-
erate income on their nest eggs.

Well, here’s the bad news.

Despite the Fed having raised short-term interest rates (FFR) five times since the great recession, which now stands a
1.37%, banks remain unwilling to pass the higher rates on to their depositors. For that reason, these increases have
provided ZERO benefit to savers.

Consider the average income you can generate on your money these days*:

• Demand deposits or savings accounts at traditional banks are yielding 0.17%...

• Internet banks are offering 1.00% but require large minimum deposits…

• Five-Year Certificates of Deposit (CD’s) yield around 2.00%

*National average of 8,000 banks and 7,700 credit unions in the US

In other words, savers who have waited patiently for higher rates are being met with a hard dose of reality that the days
of earning a safe and reliable income through the traditional banking system is a thing of the past.

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This “war on savers” has forced investors to search for yield in other places, such as corporate bonds and U.S. Treasuries.

But, thanks again to the Federal Reserve and with the help of other global Central Banks that maintain ultra-accommo-
dative monetary policy, longer-term interest rates have been kept artificially low, resulting in punitive income opportunities
for investors.

In fact, for more than 30 years, the yield on the 10-Year U.S. Treasury bond has been in a steady long-term declining
trend.

Below is a chart on the US 10-YR since 1984…

(Click to enlarge)

Years ago, investors could earn very healthy returns simply by buying and holding Uncle Sam’s finest paper.

But ever since the great recession in 2008—nearly a decade ago--yields on risk-free government debt have barely kept
up with the rate of inflation. This in large-part has been orchestrated by the world’s central banks that continue to hold
and accumulate trillions of dollars in government bonds and agency debt.

COULD THERE BE LIGHT AT THE END OF THIS TUNNEL?

Have a look at the chart again.

You’ll see that the bear market in yields may finally have come to an end.

You see, after the 10-YR yield bottomed in 2012 around 1.5%, it made a double-bottom in 2016. And since Donald

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Trump’s surprising presidential victory, the yield has indeed risen to around the 2.5% range.

Many investment strategists and bond analysts predict the low yields are in, and that interest rates are likely headed even
higher from here. Certainly the pro-growth tax cut and reform bill passed late last year reinforces this notion.

The good news is that should longer-dated interest rates continue to rise, it will benefit investors that put new money into
fixed income products such as government bonds. This is because with higher yields comes lower bond prices.

The bad news is particularly hard to swallow for investors that bought the 10-Year US Treasury bond when yields were
lower, like around the lows associated with the double bottom on the chart.

You see, when an investor holds longer-dated fixed income securities such as government bonds, “duration risk” be-
comes a significant factor.

For example, a US 10-Year Treasury bond that was purchased with a yield of 2.5% would be worth about 10% less
should the yield rise 1% to 3.5%.

In other words, investors who buy bonds at the current interest rate will lose money if interest rates move even higher
from here. Of course, if an investor holds the bond until maturity can avoid a loss on the principal. But in that case, the
investor would be “stuck” holding a security that likely generates a negative real rate of return, meaning a return that’s
less than the rate of inflation.

HOW CAN YOU GENERATE HIGHER INCOME?

One of the best places to find above average yields is in the U.S. Equities asset class.

That’s right; the stock market continues to be fertile ground for finding high quality securities that demonstrate a consis-
tent pattern of distributing reliable high-yielding dividend income to its shareholders.

Today, we’re going to reveal a simple strategy with a proven track record of returning above-average market returns.

This strategy involves buying securities that distribute above-average dividend yields. In fact, the list of securities that
we’re going to reveal all have current yields greater than US 10-Year Treasury Bonds.

After we reveal the list, we’ll also share a little-known, easy tactic that you can apply to turbo-charge the return on your
dividend paying stocks.

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But first, here’s the strategy and the list of stock to focus on for 2018.

It’s called the Dogs of the Dow, a popular dividend strategy promoted by Michael B. O’Higgins in 1991.

One reason it’s so popular is that it’s easy to implement.

At the end of every year or early into the New Year, you’ll simply want to identify the ten highest yielding stocks in the Dow
Jones Industrial Average.

The “Dow” is comprised of 30 well established, mega-capitalized companies that are considered to be “blue chip” in-
vestments.

Then after you identify the ten, you create a portfolio with an equal dollar amount applied to each stock.

So for example, to create a $100,000 “Dogs of the Dow” portfolio, you’d invest $10,000 into each of the ten stocks.

Then, simply hold the portfolio basket throughout the remainder of the year and rebalance. You’ll replace any stocks that
have fallen out of the top ten. You aim is to maintain the portfolio at the start of every year with the top ten stocks in the
Dow that have the highest yield.

The concept is contrarian.

You see, the idea behind the strategy is that the highest yielding stocks have probably lagged behind the others during
the most recent phase of the business cycle. (Taking the dividend-yield into account, and not just the current price of
the stock)

The thinking is that these particular stocks have a propensity to play catch-up in the year ahead, as compared to the
other components in the index. This is because the higher yields should make these stocks more attractive to investors
relative to the lower yielding ones.

DOES THE DOGS OF THE DOW STRATEGY WORK?

Since 2000, the average annual total return of the Dogs of the Dow has been 8.6%, when dividends are reinvested.
That’s better than the entire Dow 30, which returned 6.9% over the same period. It’s even performed better than the S&P
500 which has generated a return of 6.2% annually since 2000.

So without further ado, here are the 10 highest yielding stocks in the Dow as of the end of 2017:

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(The 2018 Dogs of the Dow)

As you can see from the chart, Verizon (VZ) has the highest yield at 4.46% as of the end of 2017.

And in the tenth spot, General Electric (GE) rounds out the list with a 2.75% dividend yield.

What’s most important for income oriented investors is that all ten of these stocks distribute dividend yields that are higher
than that of a US 10-YR Treasury bond.

HOW TO TURBO CHARGE YOUR DIVIDEND-PAYING STOCKS

As I promised, here’s a simple, but highly effective tactic that can considerably boost your income on dividend paying
stocks.

It’s an options strategy called an “over write”

Essentially, it involves selling Call Option contracts against the dividend paying stocks that you own. And if you do it
properly, it can significantly enhance the returns while generating additional income on your investments.

But before we get into the details, there are three things to consider before applying the strategy:

1. This is generally considered a bullish strategy. It works best on securities that are in an uptrend. But it also
works on stocks that are moving in a sideways pattern, or not strongly trending in either direction. Keep in mind,

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the goal here is to generate income on the asset and not rely on price appreciation. The dividends and option
premiums you collect are supposed to do the heavy lifting.

2. The Call Options targeted for sale should be “out-of-the-money”. That means you should look to sell Call Op-
tions with strike prices that are higher than the current market price of the stock. This allows adequate room for
additional capital appreciation should the stock rise more than anticipated. You see, by selling a Call option, any
upside gains above the strike price belong to the buyer of the Call Option, not you. So by selling out-of-the-mon-
ey Call options ensures that you are adequately compensated in the event your stock is called away.

3. Call Options have a limited life span and tend to decay the quickest within the last 90 days of the contract’s
expiration date. And since this strategy entails selling option premium, the erosion of the premium benefits the
seller—you. So it’s best to focus on selling Calls options that are nearer-dated (less than 90 days) This tends to
be the sweet spot and allows for generating additional income in a similar frequency of receiving the quarterly
dividend distributions.

AN EXAMPLE USING THE “TOP DOG” OF THE DOW

Here’s how it works using one of the Dogs of the Dow as an example:

Of the ten stocks that comprise this year’s Dogs of the Dow, we’re going to focus on Cisco Systems (CSCO) because
this particular stock is currently demonstrating the highest level of relative strength as compared to the other nine dogs.

That is, according to relative strength analysis, Cisco Systems is the “Top Dog.”

At True Market Insiders, we always advocate focusing on the strongest groups and the strongest stocks within those
groups as the ones that are most deserving within the investment portfolio.

And as of the beginning of the year, Cisco Systems (CSCO) possesses the best relative strength traits versus the other
nine Dogs of the Dow.

The stock happens to maintain a positive uptrend and is also demonstrating positive relative strength versus the broad
market.

CSCO is considered a good candidate for an “over-write”.

With Cisco Systems (CSCO) recent trading $42.30 per share, you could look to sell the April 44 strike Call Options for

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$1.00. The proceeds from the sale of the Call Options is yours to keep, just like the periodic dividend distribution you’re
used to collecting.

So for every 100 shares of CSCO owned, investors can look to sell one Call Option contract and collect $100 of additional
income. This is on top of the $0.29 per share quarterly dividend that stock currently pays.

The structure of the Call Option sale allows for additional upside appreciation should the stock trade above the strike price
sold (44) which would add additional gains from owning the stock. (Roughly $1.70)

And in the event that the remains below $44 at April expiration, then the process can be repeated by selling another round
of out-of-the-money Call Options that expire in 60 to 90 days.

If you continue the “over write” process on a regular basis, then the income collected from the Call Options sold plus
receiving the quarterly dividend distributions should easily translate into double-digit annualized returns.

So rather than wait around for the Fed to further normalize rates, you can take control of the situation right now and begin
generating high-yielding income streams.

Buying high quality, “blue chip” dividend paying stocks and turbo charging the returns by selling out-of-the-money Call
Options can be an effective strategy to generate the income you deserve.

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