Investing in the stock market can be a lucrative way to grow your wealth over time, but it can also be risky if you don't have a solid understanding of the stock you're investing in. One important metric to consider when choosing stocks for covered calls is earnings per share (EPS) growth. In this article, we will explore why EPS growth is so important and how you can use it to make informed investment decisions.
The “Right Stock”
In my covered call investing program, called the Cash Flow Machine, we stress that choosing the right stock is an important cornerstone to success with
this passive income strategy. You shouldn’t just do covered calls on “any” stock, but the right stock. The Right Stock will have quality earnings growth, sales growth, institutional support, high return on equity, and good relative strength. It is not all about picking a meme stock or what the financial television pundits tell you to buy. Instead, a quality cash flow strategy using covered calls should be based around a stock that you can hold “in sickness and in health” because markets and stocks move up and down in waves. Therefore, you must have conviction that over time, your stock will be around for the long term, and ensuring that your stock has earnings growth is one way to do that.
Understanding Earnings per Share
Earnings per share (EPS) is a financial metric that is used to measure a company's profitability. It is calculated by dividing a company's net income by the number of outstanding shares of stock. The higher a company's EPS, the more profitable it is considered to be. This is because a higher EPS indicates that the company is generating more revenue, which in turn means that it is able to pay more dividends to its shareholders.
The Importance of EPS Growth
When it comes to choosing stocks for covered calls, it's important to look for companies with a history of steady EPS growth. This is because companies with a track record of increasing EPS are more likely to continue growing and performing well in the future. In addition, companies with strong EPS growth tend to have a competitive advantage over their competitors. This can make them more attractive to investors, which can drive up the stock price and increase the value of your investment.
How to Measure EPS Growth
Measuring EPS growth can be done by comparing the current quarter's EPS to the same quarter in the previous year. This will give you an idea of whether the company's earnings are improving or declining. A company that consistently shows positive EPS growth is likely to be a strong investment, while one that consistently shows negative EPS growth may be a riskier choice. Another way to measure EPS growth is to compare the current year's EPS to the previous year's EPS. This will give you a longer-term view of the company's performance and help you to identify trends in the company's earnings over time.
Using EPS Growth to Choose Stocks for Covered Calls
When choosing stocks for covered calls, you should aim to select companies with a history of strong EPS growth. This will help to increase the likelihood of your investment performing well and generating a high return. In addition to looking at the company's EPS growth, it's also important to consider other factors such as its financial health, the stability of its industry, and the company's overall growth potential.
Earnings per share growth is an important metric to consider when choosing stocks for covered calls. By understanding why EPS growth is so important and how to measure it, you can make informed investment decisions that will help you achieve your financial goals.
Covered calls can be a powerful tool for generating passive income and reducing the risk of your investment portfolio. By choosing the right stocks and options, you can generate consistent monthly returns of 2% to 4% per month. However, it is important to understand the risks involved and to carefully consider your investment goals and risk tolerance before implementing this strategy.
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About Mark Yegge
Mark Yegge The Wealth Architect "Never give up your power in your health, your wealth or your time."
Mark Yegge is a recognized Wealth Architect, Hedge Fund manager, Author and Teacher in the Financial sector and the personal development arena. He has helped thousands of 6- and 7-figure investors create strategies for increasing returns, decreasing risk and reducing tax impact from investing. He is a co-founder of several mastermind groups helping successful people augment their lives in the areas of wealth, health, relationships, spirit and lifestyle. Some of his recognized programs include:
The Cash Flow Machine (www.CashFlowMachine.io)
The EPIC Mastermind (www.JustBeEpic.com)
Stock Trade Genius University (www.DestinyCreation.com)
Trade Like A Pro (www.DestinyCreation.com)
Hacking Money (book, course, and website) (HackingMoney.com) (on Amazon)
Negotiate To Win-Win (book, audio book, course, website) (on Amazon)
The Secrets of Business (book, website) (on Amazon)
The Regular Paycheck Strategy (www.CashFlowMachine.io/regularpaychecks)
...and much more.....
To do anything right in any area of your life, you must learn the right mindset – a success mindset. In investing, a success mindset is about 90% of your result, so we’d better get it right. If you put in the tough work to create your own success mindset, you will see your rewards skyrocket.
CASH FLOW & PASSIVE INCOME
All investing should lead to some kind of passive income. I don’t believe that a core investing strategy is buy and hold and hope for capital appreciation. I emphasize cashflow investing where you have the choice of using the cash flow to increase your portfolio, or using it for living. But you have the choice.
In today’s world, time is everything. There are 2 main ways to learn anything: the slow way and the fast way. With the slow way, you figure everything out yourself, with trial and error and you lose your most valuable asset: time.
With the fast way, you take existing knowledge and experience, and make it your platform. Then add in a mentor who can point out where you are coming up short and show you with his experience where you could improve and how to get even better - faster.
It's like a pole-vault to the next level. If you want to 10x your results, you need a mentor in any area of your life. I mentor people in their financial life so they get better results - faster, and without costly trial and error.