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2 Ways We Make Monthly Income from Owning Stocks

By Edited Mar 23, 2014 8 26

You May Make Over 30% Returns on Your Investments

Most people think that when they invest in their favorite stock or the favorite stock of the guy down the street you decided to pile into, that they must just sit and wait for that stock to go up or down. That the only way they will make money is if the stock goes up, and that they can’t collect any of that cash until they sell. We have found 2 ways to make income from stocks that the average investor can actually. We’re a bit obsessed with squeezing every dollar out of our hard-earned savings, so we watch our investments on a daily basis, but these two only require a few hours per month. I will use actual examples of trades we’ve done and stocks we own, but keep in mind that we are not professional stock brokers, fund managers or insurance salespeople and offer none of the following information as advice.


We've managed to pick some of the best dividend stocks for 2011. This is not information about the utilities that your parents invested in. The 4.5% dividend that many good utility stocks pay is a great way to spread the risk in your portfolio and still receive a quarterly check, but you must have quite a bit invested to make it a source of real income. Let's use TECO Energy (symbol TE) as an example, and we’ll try and keep the numbers as round as possible, assuming up to a $10K investment:

TE: On May 12, 2011, TE issued a dividend of $.21/share (actually a little more, but we’ll round for our examples). The stock traded yesterday for $19.22. It’s up more than $4/share from last year, which is excellent. If you bought 500 shares of TE yesterday for $19/share, you would have invested $9,500.

  1. The $.21 dividend per share is paid out quarterly, so every quarter you would make $105.
  •  $.21 X 500 = $105.00.
  1. There are 4 fiscal quarters in a year, so you would make $420 annually.
  • $105 X 4 = $420
  1. This breaks down to $35/month
  • $420/12 months = $35

There are a few companies commonly discussed on the financial TV shows and retirement blogs that pay a bit more than the roughly 4.5% that many Utilities do, but as you can see an extra .5% is not going to help you make your car payment. Here’s one of the stocks (the best one so far) that we own and make income on: AGNC. American Capital Agency is a Real Estate Investment Trust (REIT) that invests in government backed mortgages. I know, it sounds scary! But guess what? In July of 2010, AGNC was  at about $22/share, yesterday it was $29/ share. That’s more than a 31% rise in price. The dividend it issued on June 21, 2011 was $1.40/share. That’s more than 400% higher than TE. If you bought 340 shares at $29/share you would have invested $9860.

  1. There are 4 fiscal quarters in a year, so you would make $1904 annually.
    1. $476 X 4 = $1904
    2. This breaks down to $158/month

The annual dividend yield on AGNC is currently 18.63% - amazing! While this doesn’t quite add up to a car payment, remember that if you had invested in a mutual fund or most other stocks, you would have little or no income at all. We also invest in several stocks in the same category you may want to investigate: TWO, NLY and one mutual fund in the same group, the Invesco IVR Fund.

Covered Calls

Covered calls is a bit more sophisticated that just buying a stock or mutual fund and collecting dividends. A “covered call” is a kind of option that some traders use to mitigate losses on a stock, and others use to generate income. When you deal with an option on a stock, you are buying or selling the control of the shares you own. It’s been explained a thousand ways, and this isn’t technically the most correct, but let me explain it this way, using a gallon of gas because the price fluctuates so much:

  • Buy 1 gallon of gas for $3.50 and put it in a can in your garage
  • Spread the word that you have a can of gas and you’ll keep it for 30 days
  • Tell people that you’ll sell them the can of gas in 30 day for $3.50 if they give you $.25 right now.
  • So far, you spent $3.50 and you made income when you sold an option on your gas for $.25
  • Let’s say the price goes up to $4.00/Gallon in 28 days and the person that bought the option for $.25 says, “thank you..I’ll take my gas for $3.50 now”. Great deal for the option BUYER, because they paid $.25 for the right to buy the gas at $3.50, so they paid $3.50+.$25=$3.75 for $4 gas. YOU are happy because you invested $3.50 and made $.25 in profit in under 30 days. That’s about 7% return on your investment.
  • Let’s say the price goes DOWN to $3.25/gallon in 28 days. Will the option buyer come and pay you $3.50 for the gas? Nope. So that option expires. Now you have the $.25 option “premium” in your pocket and you still own the gas. So what do you do?
  • Sell the option to buy that same can of gas at $3.50 again and make another $.25.

It’s not quite this simple, but it’s really, really close.   The options value of stocks varies pretty widely, so you’ll need to choose the right ones. Sometimes you’ll get bought out, sometimes not and it doesn’t always go your way, but here’s an example of a play we just made to give you an idea. Keep in mind that this is not our best trade, just a recent one:

We bought 600 shares of ENTR, a technology company, for $8.74 share on April 29, 2011, investing about $5,200. That’s our can of gas:

  1. We sold the right to buy these shares of ENTR at $9. We sold these options for $.55 each on May 2nd.
    1. 600*$.55 = $330. We made $330 in income in May
    2. On May 23rd, when the options expired, the stock was only selling for $8.39 so they didn’t want to pay $9 for it after all. We still have our can of gas.
    3. On July 6th, we sold the $9 options again for $.75 this time. They expire Aug 20th.
      1. 600*$.75=$450 We made $450 in income in July

We could have probably made one addition options deal in the time we’ve owned the stock, but just weren’t paying close enough attention. The results we’ve gotten though are pretty good:

May $330 + July $450 = $780 in about 3 months

If you annualize this, like everyone does, that’s $3,120/yr. 60% ROI. $260/month

Just using these 2 examples of AGNC Dividends and a simple covered call play, we’ve demonstrated taking $15K in investments and making $260 + $158 =$418/month. That’s a nice car payment, or a good start toward your monthly expenses.

There are, of course, risks involved and we have not always been successful with these kinds of investments, but the obvious potential is certainly worth the time to do your research and get trading. 



Jul 16, 2011 10:28am
Just an update on this ENTR play - it's now July 16th, which means that ENTR call has expired and we get to sell it AGAIN!
Jul 21, 2011 10:48am
ENTR dropped down to an entry point for us again, so we just bought back those options that we sold previously at $.75 for just $.15 each. Our profit was still $.60. We're waiting for a little upswing because now the $7.50 calls are going for $.60 again, but we'd like to sell the $9 calls instead because we think the stock is going to go up. We'll wait until next week and let you know what happens!
Aug 11, 2011 3:53am
ENTR has suffered more than most after poor earnings and has dropped in value to almost 1/2 of what it was, now trading at $3.57. We won't get paid for owning this in August, but may sell the September $4 calls for $.35 for a tiny #200 paycheck. After some real craziness over the past week or so, AGNC remains at $28.41. Remember, our strategy for these was the income!
Aug 11, 2011 7:30am
This is actually what I was planning on doing with my income from InfoBarrel - going on to invest it in shares to gain dividends etc. - so I will get like a compound passive income. Great info!
Aug 11, 2011 11:06am
Nice idea!
Aug 11, 2011 8:04am
I really enjoyed this article. I love trading stocks but have never ventured into options but after reading this I think I will have to give it a shot.
Aug 11, 2011 9:42am
Great article!
Aug 11, 2011 4:14pm
Good explanation of covered calls. Nice analogy.
Aug 12, 2011 9:35am
Very interesting article on making income from owning stocks. Like Dr_E, I am planning on investing my online income in stocks that have a high dividend return. We already own stocks in a couple of these stocks, so it is easy to just add extra money through their dividend reinvestment plan to purchase more shares. Purchasing stock this way eliminates any costs for purchasing the new shares.
Aug 12, 2011 6:14pm
I managed to buy a few shares when the credit crunch hit the UK, they are now starting to pay off :)
Aug 13, 2011 12:18pm
I've always known about dividend stocks, but had never had options fully explained to me. Reading your simple analogy has gotten me interested in doing more research on the topic. Thanks for the info!
Aug 14, 2011 5:22pm
Thanks Joel, I still have to go back and remind myself of the basic idea behind what ends up being a mathematical play.
Aug 18, 2011 12:50pm
I love selling covered calls - my worst case scenario is that I sell for more than I thought the stock was worth!
Aug 25, 2011 2:13am
Insightful article
Sep 18, 2011 10:41am
Superb article!
Sep 19, 2011 9:23pm
I've been recently thinking about an index fund...maybe I'll try this as well!
Sep 19, 2011 9:26pm
Thanks Birk...BIG difference between this and an index fund, one is set and forget it, these strategies are a little more involved.
Sep 20, 2011 6:11am
No the worst case senario is when the stock falls through a major support level and you didnt exit with a stoploss.
Sep 20, 2011 8:19pm
Unfortunately, I'm there on too regular a basis.
Sep 21, 2011 11:52pm
Great article! I've always been an income investor myself. I may not have made the best returns over the years but they have been steady and reliable.
Sep 26, 2011 12:01pm
I, like many others here, intend to invest my online income. I think research and preparation is the key to investing success.
Oct 12, 2011 4:17pm
In the past I have seriously considered investing in Stocks to earn income monthly. However, I don't know exactly how to do. This article haas given me some important technical and useful information. Thanks for it. keep up the good work. it really helps me do apply some of your methods as it sounds very good.
Oct 17, 2011 12:37pm
Great article and just what I was looking for. I keep going back and forth deciding whether to dabble in the market, getting information like this helps gets me excited to take a leap!
Jul 5, 2012 8:33am
Great explanation of a covered call. When I first started reading about option plays it took me re-reading an article 2-3 times to get the concept. Your explanation was straight forward and illustrated the concept clearly. I'll make sure to pass this article on to friends who are still struggling with the options! Thanks.
Jul 5, 2012 8:33am
This comment has been deleted.
May 17, 2013 2:08pm
Informative article, had never heard of covered calls before
Aug 12, 2013 11:58am
Thanks for the article Mark and thanks for the follow up on the covered calls. All good stuff!
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