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Stocks Under $10 with 50-100% upside potential - 14 days FREE!

IBM's Loss Isn't Amazon's Gain

Stocks in this article: IBM AMZN RAX MSFT GOOG FFIV

The relatively small dividend yield doesn't initially appear incredibly attractive, but when viewed from the lens of history it becomes intriguing. Every year for the last six years (as far back as I believe is relevant) IBM has raised the dividend amount. What begins as a modest yield grows with time. For long-term investors, this is exactly what you want from a dividend-paying stock.

Investing in IBM also places you in good company. Warren Buffett's Berkshire Hathaway (BRK.B) owns over 6% of IBM's outstanding shares. Buffett has made a name for himself buying and holding companies that others passed by.

Buying a company Buffett likes is good. Buying the company at a discount is really good, and buying at an even larger discount is exceptional. Let me show you how to get IBM at an even larger discount.

The goal is to profit from IBM. Instead of buying the shares directly, another choice is taking on someone else's risk as a method of getting your foot in the door. By selling June $200 puts for about $10.50, you may end up owning IBM at a cost basis of $189.50. The current price of IBM as I write this is about $192. After adjusting for a dividend payment between now and June, the difference is about $2 a share savings by selling the $200 put instead of buying the stock outright.

If the shares continue to rise above $210.50, you miss out on further gains but you also have time working for you and a lower risk in case the stock takes another turn lower. Selling options isn't for everyone, and you need to know what you're doing. But if it does make sense, selling puts is more conservative than owning the stock outright.

At the time of publication the author had no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

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