Dividend Kings are the elite class of income-generating stocks. These are companies that have increased their dividend payouts to shareholders for 50 consecutive years or more. This level of consistency not only implies business stability and financial resilience but also investor trust. Many long-term investors prize these stocks for their reliable cash flow and inflation-hedging potential. But what if there were a way to take this already solid investment class and enhance it by generating additional weekly income—whether you own the stock or not?
This is where options trading, specifically using cash-secured puts and covered calls, comes in. By combining Dividend Kings with these conservative options strategies, investors can not only collect premium income but potentially capture dividend payouts and compound returns in a structured way. This essay explores the strategic relationship between Dividend Kings and these options tactics, illustrating a smart way to "get paid to wait" for good stocks and "get paid to sell" them when you're ready.
Dividend Kings are companies that have paid and raised their dividends for at least 50 straight years. Examples include Coca-Cola (KO), Procter & Gamble (PG), Johnson & Johnson (JNJ), and 3M (MMM). These are typically large-cap, blue-chip companies with global reach, durable competitive advantages, and a strong commitment to shareholder returns.
The appeal of Dividend Kings lies in:
While these stocks are often considered "buy and hold," using options allows for a more active and income-generating approach.
A cash-secured put involves selling a put option on a stock you'd like to own while holding enough cash to buy it if assigned. If the stock stays above the strike price at expiration, you keep the premium. If it drops below the strike, you're obligated to buy it at the strike price—often at a discount to the market price.
Why this works well with Dividend Kings:
Example:
Suppose Coca-Cola (KO) trades at $60. You sell a 1-week $58 put for $0.40. If KO stays above $58, you keep the $40 per contract. If it drops below $58, you buy 100 shares at $58, but your effective cost is $57.60. That's a discount for a long-term dividend-paying asset.
Once you own the shares—whether through assignment or direct purchase—you can sell covered calls to generate more income. A covered call is when you sell a call option against 100 shares you already own. If the stock stays below the strike, you keep the shares and the premium. If it moves above, you may be "called away," meaning your shares are sold at the strike price.
Why this fits Dividend Kings:
Example:
Let's say you now own KO at $58. You sell a $60 covered call for $0.50. If KO stays under $60, you keep the premium and the stock. If it rises above $60, your shares are sold at $60, and you lock in a $2 capital gain plus the premium.
A powerful way to use both puts and calls on Dividend Kings is the Wheel Strategy:
This strategy allows for:
If you're assigned shares before the ex-dividend date, you also become eligible for the dividend payout. This provides an additional yield boost.
Important note: Traders will often avoid selling covered calls that expire before the ex-dividend date, especially if the call is deep in the money. Otherwise, the buyer of the call may exercise early to capture the dividend.
For those targeting the dividend, it's worth aligning assignment or entry timing with upcoming dividend dates. If held long enough, the dividend yield + call premium + capital appreciation can provide impressive total returns.
While the strategies are considered conservative, risks still exist:
Still, with proper strike selection and risk management, these are manageable for disciplined investors.
Dividend Kings are an excellent foundation for income-focused portfolios, offering consistency, strength, and long-term growth. When paired with options strategies like cash-secured puts and covered calls, investors can supercharge their income potential. The result is a flexible framework for entering and exiting positions while generating steady cash flow—often weekly.
Whether you're waiting to buy a Dividend King at a discount or want to profitably sell one, these options strategies provide a repeatable and sustainable method. Over time, this approach can enhance total returns, reduce risk, and turn blue-chip stocks into an income machine. For investors seeking both reliability and reward, this combination is hard to beat.
Companies with 50+ years of consecutive dividend increases (49 stocks):