Ever wonder why Apple (AAPL) does not pay a dividend? I sure have. The good news is, under the volatile market conditions we have experienced over the last year, there is a way to turn Apple’s stock into a “dividend” paying stock, producing a stream of income to be collected. All you have to do is buy when the stock price declines, and sell when the stock price rises—voila you have created a nice dividend stream. With the stock market gyrating like it has been, these “dividends” could really add up.
So how do we do it? By dedicating a small portion of our portfolio to buying and selling Apple stock as price fluctuates. Apple is a great stock for this sell-high, buy-low short term strategy. The price of Apple stock is high enough so that “normal” market swings (2-4%), along with market corrections work together with the increase in price that Apple stock has experienced over the past few years to create a lot of cash for us to harvest.
I should caution you, this should not be a large portion of your portfolio—at most five to ten percent. We are playing the volatility of high priced stocks, this should be done on a scale that individual investors can be comfortable with. If this sort of thing seems like there is too much risk involved for you to stomach, but you would still like to create some income from Apple’s stock price fluctuations you could split your Apple stock into two lots. With one lot you play the volatility and the other lot you hold for the long term investment purposes.
After performing an analysis on the amount of money that can be harvested from Apple price fluctuations for the past year, I have found that one COULD have harvested $271 in income per share through this type of activity (not counting intra-day activity, I used the closing prices for each large swing over the past year to arrive at this number).
So how should you go about executing this strategy? I would first come up with several rules that you are comfortable with using every day that determine when to sell and when to buy Apple stock. The rules that I personally feel comfortable using are: sell when the price has increased 10% from the recent low, and buy when there has been a 5% drop in price from the recent high. I should point out that using rules like these would not have allowed you to capture all of the $271 per share mentioned above, but you would be able to create an income stream somewhere around $100 per share in the past year.
To execute this strategy successfully you must be prepared to devote time every day to check your stock’s price and to see if your buy or sell rules have been triggered. I would also scan the business section of several newspapers to see if Apple is making the news; I personally read The New York Times and The Wall Street Journal.
I will caution you on the discipline needed for this strategy. You must know yourself and whether you can carry out this type of un-emotional investing, invest or sell because the rules say to, not because your emotions say to. You will only really know if this strategy is for you after you to miss a small spike in price and the income it has produced because the rules you are following did not alert you to the trend. These rules will work to capture income; they will not allow you to capture ALL of the possible income, though. The silver lining will be the rules will help you maintain professional distance as you try to figure out where the stock is headed next, instead of just guessing.
After having said that you must stick to your rules, here is the only time I would not: when it is time to buy. If your rule is to buy when the stock is 5% off its recent high, and the stock drops 3% and starts climbing an extended climb, I would get back in.
I hope this allows each of you to create an income stream that did not already exist, and as always I welcome any comments you might have that could make this strategy better and easier to execute.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.