John dobosz

FoCus: Dividends, income, value investing, options

strategy: Buying the stocks of fundamentally sound companies that are discounted relative to historical valuations and that pay high and rising dividends. This approach provides significant investment income and superior long-term return potential. Selling options on dividend-paying stocks boosts yields, reduces cost basis and can enhance total return. The goal is to earn 2% to 3% per month, corresponding to annualized returns of 24% to 36%. In Forbes Dividend Investor, Dobosz publishes a weekly portfolio of stocks chosen by criteria that include discounts to five-year average multiples of price to sales, book value, earnings and cash flow. Stocks are rewarded for superior rates of dividend growth and revenue growth, as well as for high yields and low payout ratios. Cash flow must cover dividends comfortably. Insider selling is punished, and insider buying is rewarded. Once a stock is in the portfolio, Dobosz recommends using a 10% trailing stop to lock in gains and limit losses on all positions.

Case study: In February 2018, Dobosz added shoe retailer dsW (DSw) to the Forbes Dividend Investor portfolio. DSw traded at 12 times earnings versus its five-year average P/E ratio of 16.2. “Despite lean valuations, revenue was rising and insiders were buying,” Dobosz says. The stock produced a total return of 47% by the time the position was closed in October, when DSw fell 10% from its high.

Forbes Premium Income Report presents two options-selling trades on dividend-paying stocks each week. “Buy writes” involve buying the stock and selling call options, often to grab a dividend.

VerizoN CommuNiCatioNs’ (VZ) buy write in December produced a 3.6% total return over a 29-day holding period, or 45.8% on an annualized basis, when the options expired in the money on January 18. “Put writes” produce upfront money and oblige the seller to purchase the underlying stock at the strike price until the options expire. If the stock remains above the strike price, the puts expire worthless and you keep the money you earned by selling them. On December 11, selling $20 puts on oliN CorP. (OlN) for $0.65 apiece produced a 3.4% return over the next 38 days, or a 32.3% annualized.