Podcast – Episode 207 — Get Paid to Hold Stocks

Most stock investors only know one way to make money: buy a stock, hold it, and hope the price goes up. But hope is not a trading strategy. If the market goes sideways for six months or takes a dip, your money sits idle. Recently, a member of our community asked a fantastic question: “How do I get paid to hold stocks?” The good news is that you already own the assets required to generate consistent income right now. You don’t need to take on wild risks or day-trade highly volatile meme stocks. Instead, you can operate like a market maker by utilizing three distinct, conservative strategies to squeeze cash flow out of your existing portfolio.

Here is exactly how you can fight back against Wall Street and get paid to hold your stocks.

Strategy 1: The Power of DRIP (Dividend Reinvestment)

Our first strategy requires virtually no effort—just the click of a button—but yields massive long-term results. It’s called a Dividend Reinvestment Plan (DRIP).

Normally, when a company pays a dividend, your broker deposits the cash into your account. With DRIP turned on, you instruct your broker to automatically use that cash to buy more shares (including fractional shares) of that exact same stock, usually commission-free.

Why is this so powerful? Let’s look at historical data from Jeremy Siegel’s book, The Future for Investors.

If you invested $1,000 in the stock market in 1871 and simply held it until 2003, it would have grown to $250,000.
If you had turned on DRIP and reinvested those dividends over the same period, that $1,000 would have grown to nearly $8 million.

DRIP is especially powerful during market downturns or when a stock trades sideways. In the 1990s, Philip Morris faced massive lawsuits, and its stock flatlined for 12 years. Investors who didn’t use DRIP made nothing. However, investors who used DRIP kept accumulating more shares at cheap prices with every dividend payout. When the stock finally rallied, the DRIP investors had doubled their share count and ended up beating the S&P 500.

Action Step: Log into your brokerage (e.g., Schwab, Fidelity) and update your dividend settings to automatically reinvest. Just remember, if you are doing this in a taxable margin account, you will still owe taxes on those dividends even though they were reinvested.

Strategy 2: Fully Paid Stock Lending (Stick It to Wall Street)

Every day, hedge funds and institutional traders look to short stocks. To do so, they must borrow shares from someone who already owns them. Often, brokers lend out your shares and keep all the interest for themselves. But there is a hidden setting you can activate to force them to split the profits with you.

This is often called a Fully Paid Lending Income Program or Stock Yield Enhancement Program. When you enroll, your broker will split the daily interest charged to the short sellers with you 50/50.

“Nothing else regarding your account or how you hold the stock changes at all… If you don’t enroll, the broker keeps the interest. If you do enroll, they split it with you. So the only question is whether you get paid for it.”

The Details:

The Payout: Easy-to-borrow stocks might pay 1% annualized, while hard-to-borrow stocks can pay anywhere from 8% to 30%.
The Flexibility: You can sell your stock, trade options on it, and collect dividends exactly as you normally would. You are not locked in.
The Risk: Shares lent out are technically not covered by standard SIPC insurance. However, brokers are required to post 102% cash collateral at a custodian bank to protect you in the event of a brokerage bankruptcy.
The Catch: You must own the stock outright (no margin), and some brokers require a minimum account or position size (e.g., $10,000).

Strategy 3: Renting Your Stocks with Covered Calls

If you want to start making serious monthly income, you need to learn how to “rent” your stocks. In the options world, this is known as selling a Covered Call.

Let’s say you own 100 shares of Apple. By selling a covered call, you are selling someone else the right to buy your shares at a specific price (the strike price) by a specific date (the expiration). In exchange for taking on this obligation, the buyer pays you cash up front, known as the premium. This money hits your account immediately and is yours to keep forever.

What happens at expiration?

The stock stays below your strike price: The option expires worthless. You keep your shares, and you keep the premium. You are now free to sell another call next month.
The stock rises above your strike price: You must sell your 100 shares at the agreed-upon strike price. You keep the upfront premium, plus you get the profit from the stock’s rise up to that strike price.

Covered calls are ideal for stocks you believe will move sideways or slightly higher. The biggest mistake amateur traders make is selling covered calls on highly volatile stocks (like early GameStop or Nvidia) that are likely to gap up massively, causing them to miss out on huge stock gains.

Pro Tip for Underwater Stocks: If you own a stock that has dropped significantly below your cost basis, selling covered calls at your break-even price might yield almost zero premium. In these cases, experienced traders might sell cash-secured puts below the current price to lower their overall cost basis, a more advanced conservative options strategy.

Start Building Passive Income Today

You do not need to be glued to a trading screen to make money in the markets. By combining these three strategies—reinvesting dividends to compound shares, lending shares to collect interest, and selling covered calls to generate premiums—you can turn a stagnant portfolio into an active, cash-flowing machine.

Podcast Transcript

If you don’t know, my name is Allen, I’m from OptionGenius.com. Let me know real quick in the chat if you don’t own any stocks. I’m assuming most of you guys do. I know a lot of you are options traders, but you still probably own something. So, if you don’t own any, let me know, and let me also know what is your biggest holding. If you do own stocks, what is the one stock that you own the most of? That would be interesting to know.

(Audience Interaction) M D L N. Okay, I don’t know if I’ve ever heard of that one before. H L, all right… SLV? Okay, that one is silver. Mark doesn’t have any stocks, he’s just pure options. Okay, not even in your retirement accounts, Mark? All right. Intel for Mike. All right, that one’s done really well lately. I think strategy number two might be a good money maker for Intel, but we’ll talk about that. Nick says the majority of his holdings are in ETFs and indexes. Sounds good.

Before we get started, we do have the disclaimer, of course. For educational purposes only. There is always risk in trading; no guarantee of results. Consult a professional before you make any decisions. And trading and investment decisions should only be made after careful review of all relevant risks, costs, and personal circumstances.

Now, we’re going to be covering three different strategies today. Each one is a little bit different, each one takes a different level of involvement, and all three of them can work together. By the end of today, you’re going to understand all three and know which ones to start with.

The first two are pretty simple. It’s just a matter of clicking a button, and voila, surprise—more money. The third is going to take a little explanation, but I’m sure you guys will get it pretty quickly.

The issue is that most people who own stocks only know that there is one way of making money: you buy, you wait, and you hope that the price goes up. That’s the whole strategy, right? And that works sometimes. It works if you have a very long time horizon and you pick the right ones and they continue to go up. But if the market goes sideways—it could do it for six months, it could do it for a year—or it drops, you earn nothing, and you just sit there watching your account bounce around.

What we are going to show today is three different ways that actually generate income for you, regardless of whether the price goes up or down. And because you already own stocks, you already own the assets that you need to do this right now in your brokerage account.

Strategy #1: Dividend Reinvestment Plans (DRIP)

Strategy number one has to do with dividends. Now, dividends by themselves are a great strategy, but this is something I discovered in the book called The Future for Investors by a Wharton professor, Jeremy Siegel. His research showed that if you had invested $1,000 in the stock market all the way back in 1871, by the year 2003 (which was 132 years later), your $1,000 would have grown to $250,000. Pretty nice, right?

Well, if you had used the DRIP strategy, owned the same stuff, and did nothing else but click a button to turn on DRIP, your $1,000 would have been worth almost $8 million instead of $250,000. Without this strategy, you would have made an average of 4.5% a year. With this strategy, you would have been able to make a 7% a year return. In dollar terms, that’s a 33-to-1 difference.

So, what is it? It’s called DRIP: Dividend Reinvestment Plan. Basically, you tell your broker that every time you get a dividend, instead of giving you cash, you want them to reinvest it into the same stock. You want them to buy more shares for you.

With DRIP, your broker actually gives you something called fractional shares, so all of the money is put to work. Another benefit is that there are no commissions paid on this reinvestment. Let’s do an example. Let’s say that you have a stock trading at $175 and you get an $80 dividend. That’s not enough to buy a whole share. But if you’re enrolled in DRIP, your broker would go ahead and buy 0.457 shares for you. You can’t do that on your own!

Let’s see why we should do this. In the 1990s, Philip Morris stock took a beating. Lawsuit after lawsuit sent the price lower and lower. In 2003, the stock was at $28 a share—the same price it was 12 years earlier. The S&P 500 at that time had doubled. It sounds like Philip Morris investors got a bad deal, right? Well, during those 12 years, Philip Morris raised its dividend 10 times. Each reinvested dividend bought more and more shares because the price kept dropping. When the lawsuits finally cleared up at the end of 2003 and the stock jumped up to $50, the investors who had dripped had doubled the amount of shares they owned. They earned a total return much greater than the S&P over those 12 years—just by doing nothing except turning on DRIP.

Then there’s the Great Depression. The Great Depression actually made “drippers” very wealthy. If you had invested $1,000 at the very tippy-top of the market in September 1929 and dripped until November 1954, your money would have grown to $4,440. If you had only invested in the market with no DRIP, you would have only had $2,720. That’s a massive difference.

How do you turn on DRIP? It’s free and takes about 60 seconds at every major broker. You can do it across your entire portfolio or stock by stock. Taxes still do apply, as reinvested dividends count as income. It works beautifully in an IRA, Roth, or 401(k) where the compounding is tax-sheltered. You can turn this off anytime, and when you go to sell, the fractional shares will sell automatically.

Strategy #2: Fully Paid Stock Lending (Stick It To Wall Street)

Number two is what we call “Stick It to Wall Street.” This is a secret setting in your brokerage account that allows you to earn interest just for owning stocks.

Every day, hedge funds, banks, and institutional traders want to short stocks. To do that, they have to borrow the shares from somebody who already owns them. A lot of times, they look to individual clients who have shares in their accounts. In exchange, they will pay interest daily. Up until now, your broker probably lent out your shares and kept all the interest for themselves.

If you turn this program on (often called the Fully Paid Lending Income Program or Stock Yield Enhancement Program), your broker will split the interest they get with you 50/50. If you don’t have this turned on, you don’t get the money.

Nothing else regarding your account changes. You keep your dividends, and you can still sell your stock or trade options on it at any time. The interest rate you get depends on how hard the stock is to borrow. Easy-to-borrow stocks might make you about 1% a year. Moderate is 3% to 6%. Hard-to-borrow is 8% to 15%, and very hard-to-borrow stocks can pay 15% to 30% annually.

For example, if you own $50,000 worth of a stock with a 10% rate, that’s $5,000 per year (or $13.89 per day) deposited freely into your account. You do nothing, you don’t give up the shares, and it’s just free money. To enroll, you typically need to submit a short application at your broker. The universal requirement is that you must fully own the stock (it cannot be bought on margin).

What about the risk? Normally, your account is protected up to $500,000 by SIPC insurance. If your shares are lent out, that specific insurance does not cover the lent-out shares. However, brokers are required to post cash collateral of 102% of the value of your shares at a custodian bank. If the broker goes bankrupt, that collateral is returned to you.

Strategy #3: Renting Your Stocks (Covered Calls)

Strategy number three is renting your stocks: the good old covered call. This is where you can start making serious moolah without having to sell your shares, while still collecting your dividends and your lending interest.

Let’s say you own 100 shares of Apple. What if you could get paid every month just for owning it? By selling a covered call, you sell somebody the right to buy your Apple shares at a specific price (let’s say $200) by a specific date. In exchange, they pay you cash up front, called the premium. That money is transferred into your account immediately and is yours to keep forever.

By expiration, one of two things will happen:

If Apple stays below $200, the option expires worthless. You keep the stock and the cash premium. Great, you’re done!
If Apple goes above $200, the buyer will exercise the option and buy the stock from you at $200. You still keep the cash premium, and you’ve made a profit on the stock moving up to $200.

The only catch is that if Apple goes way, way above $200, you miss out on those extra gains. This is why you don’t do a covered call on a stock you think is going to double in price rapidly. Covered calls work best on stocks you believe are going to move sideways, move modestly higher, or reach a price where you’d be happy to sell anyway.

If the stock jumps up in price, you have four options:

Let the stock be called away (sell at the strike price) and take your gains.
Let the stock be sold at the strike price, and then buy it back on the open market if you want.
Let it be sold, and then sell a cash-secured put option at a lower price to try and buy the stock back at a discount (this is part of the “Wheel Strategy”).
If you don’t want to lose the stock, you can “roll” the option. You buy it back and sell another call option for a later date, usually for an additional credit.

My personal plan is to do covered calls in my retirement accounts once a month (every 30 days). I aim for about 1% to 3% per trade, depending on the stock.