E How I Replaced Lost Dividend Income With Options Income

The COVID-19 pandemic has created a challenging environment for dividend growth investors. More than 600 companies announced dividend cuts or suspensions during the second quarter of 2020, even companies with long histories of annual dividend increases.

My DivGro portfolio suffered several dividend cuts and suspensions. To date, I've experienced three cuts and three suspensions, reducing my projected annual dividend income by about $1,832. And another planned reduction will reduce my projected annual dividend income to about $1,959 by year's end.

My general approach to dividend cuts or suspensions is to close such positions. However, I've decided not to take any such action until perhaps in December, when I usually consider trades for tax-loss harvesting purposes. Instead, I've sold covered calls to replace most of the lost dividend income.

This article provides details.


I've been a dividend growth investor since January 2013, when I founded DivGro and invested in my first stock. In 7.5 years of investing, I've collected more than $100,000 in dividend income. Every dividend dollar is reinvested, so I benefit from the compounding effect of earning dividends on stock bought with dividends.

In June 2016, I started trading options to generate extra income and to indirectly boost DivGro's dividend income. As with dividend income, selling options provided additional cash that allowed me to buy more dividend stocks. I've collected about $74,000 in options income so far. 

DivGro's current projected annual dividend income (PADI) is $30,087, meaning I can expect to receive about $2,500 in dividend income every month, on average, in perpetuity. Of course, that assumes that DivGro won't suffer additional dividend cuts or suspensions!

Dividend Cuts and Suspensions

Here is a list of dividend cuts and suspensions announced for stock positions in my DivGro portfolio:

I've also experienced a distribution cut in one of the closed-end funds I own:

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Disclaimer: I'm not an investment professional or a licensed financial advisor. This article represents my personal views and decisions, which may not be appropriate for other investors. ...

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