The Wheel Strategy Hack Every Dividend Investor Needs to Know [Data-Driven Strategy]

Dividend stocks are great, but dividend aristocrats are in a league of their own. These companies have raised their dividends for 25+ years straight, making them some of the most reliable names in the market. Now, imagine combining that stability with the income power of options. That’s where the wheel strategy comes in. In this guide, you’ll see how to use dividend yields as a timing tool, how options can create multiple income streams, and how our free backtesting file helps you test it all before risking a dollar.

What Are Dividend Aristocrats (A Special Stock Category)

You’ve probably heard the term “dividend aristocrats” before. If not, don’t worry, it’s simpler than it sounds. These are companies that have managed to increase their dividends every single year for at least 25 years in a row. That’s no small feat! We’re talking about big, established firms with steady earnings and solid financial health. 

For investors, they’re often seen as the “safe hands” of the stock market. They’re great if you like the idea of reliable, growing income over time.

Why Dividend Aristocrats Matter

Investors love dividend aristocrats for one simple reason: consistency. These companies have been rewarding shareholders with steady, growing dividends for decades, which shows they know how to generate profits and manage money wisely. In shaky markets, that kind of track record is gold. It’s why dividend aristocrats are often viewed as safe bets, offering a bit of cushion when things get rough and a reliable source of income for anyone who prefers a steadier ride.

Evaluating Historical Dividend Yields (The Search for High Dividend)

One of the smartest ways to size up dividend aristocrats is by looking at their historical dividend yields. Think of it as checking the “heartbeat” of how a company rewards its shareholders. 

A steady or rising dividend history shows commitment, stability, and financial strength. If you track these patterns over time, you get a clearer picture of when a stock might be offering real value, and more confidence in choosing the right moment to trade.

Options Strategies with Dividend Aristocrats

Dividend aristocrats are already strong investments, but when you add options into the mix, the potential gets even better. Most options strategies don’t actually require you to own the stock, though there’s always a chance of assignment. The good news? If you do get assigned on a dividend aristocrat, you’re holding shares that keep paying you increasing dividends over time. That dividend stream can act like a built-in “return floor” for your strategy.

One popular dividend option strategy is to pair these steady stocks with options, creating an income stream that complements their dividends. Here are two classic approaches investors often use with dividend aristocrats:

• Covered Calls: You hold the stock and sell call options on it. The premium gives you extra income, making those steady dividends even sweeter. The trade-off: if the stock jumps past your strike, you may miss out on some upside.
• Married Puts: You buy shares and a protective put at the same time. The put works like insurance, capping your downside. Yes, you pay a premium, but it keeps your long-term dividend play safe from sudden drops.

You can also start with strategies that don’t require owning the stock upfront. For example, selling puts could lead to assignment, but if it does, you’re picking up shares of a company that pays reliable, growing dividends. That’s not a bad consolation prize.

And if you really want to maximize income, you can turn assignment into an opportunity by running the wheel strategy: you hold onto the stock, collect dividends, and sell calls against it. Two income streams, one steady setup.

Gain an Edge When Selling Options on Dividend Aristocrats - Our Wheel Strategy Idea

We don’t just write about options strategies, we trade them ourselves. Every idea we share starts with a backtest we’ve actually run to see if it holds up in the real world. If the results look promising, we pass them along so you can test them too.

One idea we’ve been excited about is selling puts on dividend aristocrats, but with a smart twist. Instead of looking at puts in isolation, we use dividend yield levels as a guide for when to step in. This way, you’re positioning yourself to potentially pick up high-quality dividend stocks at attractive prices, and then put the wheel strategy to work.

The Idea We Wanted to Test on Options on Dividend Stocks

Let’s say you sell a put on a dividend aristocrat you like. The stock is trading at $100, and you choose a $90 strike put expiring in a month. Then some bad news hits, the stock dips below $90, and you’re assigned, meaning you now own 100 shares at $90.

Now, here’s where dividends come into play. Say the dividend yield at that moment is 5%. At first glance, a high yield looks attractive, but remember, yields often spike because the stock price has fallen.

Here’s the thing: entering when the dividend yield is already high can actually work in your favor. A higher yield usually means the stock is relatively cheap, so you’re picking up shares at a discount. From there, you not only get stronger dividend income, but you also leave room for the stock price to rebound, giving you two ways to win.

Of course, you don’t want the yield to keep rising after you’re in, since that often signals the stock is sliding further. The sweet spot is entering when the yield is elevated, then watching the stock stabilize or climb back up. That’s where this strategy shines.

Why This Matters

There are at least three reasons to back up our idea:

1. Risk Management: Selling puts on dividend aristocrats means you’re setting yourself up to possibly buy great companies at a discount. The risks are twofold: normal market swings (stock dips lower) and the rare but harsher case of a company collapsing. By checking today’s dividend yield against its historical range, you get a clue about whether more downside is likely. And because dividend aristocrats have raised payouts for 25+ years, the odds of a total wipeout are much lower, giving you an added layer of confidence.
2. Potential Income: This isn’t just about option premiums. Dividend aristocrats also pay steady dividends, so if you get assigned, you’ve created two income streams: premium + dividend. That combo means you’re stacking consistent cash flow on top of already stable stocks.
3. Dividend Yield as a Signal: Looking at past dividend yields is a well-known trading tool. The current yield, compared with its historical floor and ceiling, can guide entry points and help set expectations. Think of it as a built-in compass for timing trades on companies with proven staying power.

Tools to Help You

Our options screener is designed to help you quickly scan dividend aristocrats and check their current dividend yield, a key number when deciding if a stock is offering good value right now. With us, you can screen specifically for high dividend aristocrat stocks that meet your yield criteria.

On top of that, we provide a free backtest file (just click here to open it) where you can set your own dividend yield threshold and see how the stock performed in the past. This lets you move from theory to data-backed decisions.

With these tools, you can:

• Identify attractive opportunities based on dividend yield levels
• Run backtests to see how your trade idea would have worked historically
• Make more confident trading decisions, backed by both fundamentals and history

Using Our Backtest File to Buy Options on Stocks for the Wheel Strategy

The best way to see how this works is with a real example. Let’s walk through how to use the backtest file step by step, using Chevron (CVX) as our case study. This will show you how to spot a trade idea, plug it into the backtest, and evaluate whether the setup makes sense before you commit capital.

Step-by-Step Guide to Using the Backtest File

Using our backtest file is easy, as we tell you in the step-by-step instructions below.

Step 1. Find a Trade Using the Scanner (Choose the Right Stocks)

Start by running the scan called “Sell high prob puts on Dividend Aristocrats – If assigned return will be more than 4%.”

In this example, Chevron (CVX) shows up. At the time of writing, CVX trades at $160.23 with a dividend yield of 4.12%. A possible setup would be selling the $157.5 put expiring in two weeks.

Here’s what the P&L looks like:

• Breakeven: $156.10 (strike minus the premium received)
• Max profit: $144 (the premium collected)
• Downside: Below $156.10, losses build linearly as the stock falls

The main takeaway: look for a naked put with solid profit potential. And if assignment happens, you’re still buying into a strong dividend payer. In this case, CVX carries a fundamentals score of 9/10, showing the kind of stability that makes dividend aristocrats attractive for this strategy.

Step 2. Entering Details in the Backtest

Now that you’ve got your trade idea, it’s time to plug it into the backtest file and see how this wheel strategy would have played out in the past.

For our CVX example, you’d enter:

• Ticker: CVX
• Dividend Yield Threshold: 4.12% (from the scan)
• Starting Year: 2010 by default, but feel free to adjust if you’d like to test different periods

Once those inputs are in, the backtest is ready to run.

Step 3. Evaluate the Output

Once the backtest runs, you’ll see how often CVX’s dividend yield crossed your chosen threshold and what that meant in the past.

• Analyze Results: The file will show you historical performance metrics, including how frequently the yield was above your set level and the outcomes of similar trades.
• Look Ahead: This is just the first layer of insight. The real value comes from interpreting what those numbers mean for your strategy today, something we’ll explain in the next section.

Real Life Example: The Typical Output of our Dividend Aristocrat Backtest

Let’s check the results of our CVX example. At a dividend yield of 4.12%, the backtest gives us some valuable insights that can help shape smarter trading decisions.

Backtest Results

The backtest results for CVX reveal a few key points:

• • Percentage of Cases Above 4.12%: CVX’s annual dividend yield was above this level 87.5% of the time. At first, that sounds great, but it actually means a 4.12% yield isn’t rare. Since high yields usually come from lower stock prices, there could still be room for the price to fall. That’s why waiting for an entry closer to the “floor” might make more sense.
  • Minimum Yield: The lowest yield on record was 3.40%. Even at that level, CVX offered a solid payout, highlighting its consistency as a dividend aristocrat.
  • Maximum Yield: The highest yield reached was 8.34%, during a time when the stock price dropped sharply. Remember, you want the yield to be high when you enter (cheap stock, strong payout) but ideally to decline after you’re in (stock recovers, price rises).
  • Average Yield: Historically, CVX averaged 5.22%, which is higher than the current 4.37%. That suggests the stock might still have room to slide before reaching a more attractive entry point.

Understanding the Charts

Our analysis also comes with charts to make the story easier to see:

• The blue line shows cumulative dividends (rolling four quarters). As you’d expect from a dividend aristocrat, the trend points steadily upward.
• The red line tracks dividend yield, which bounces around depending on the stock price.

Those yield swings create an interesting dilemma:

• Long-Term View: Looking at the full history, CVX’s yield has been lower than today’s level about 80% of the time. That suggests this may not be the strongest entry point yet, since the stock could still dip further, lifting the yield even higher.
• Post-COVID View: Since 2021, yields have shifted into a different range. That might signal a new normal or “floor,” meaning the current level could actually be an opportunity if the stock stabilizes or rebounds.

The bottom line: it all depends on perspective. What’s most important is timing: ideally, you want the dividend yield to be high before you enter, not climbing higher after you’re in (which usually means the stock is still falling). Catching the trade at an already elevated yield gives you both solid dividends and a better shot at upside from a recovery.

Strategy Implications

What does all this mean in practice? If you sell puts on CVX and get assigned, holding onto the shares can actually work to your advantage. Dividend aristocrats like CVX bring both stability and long-term growth potential, and with the wheel strategy, you can turn that into a consistent income plan.

Here’s the simple flow of the wheel:

• Step 1: Sell Puts: You sell a put. If CVX drops below your strike at expiration, you’re assigned shares at a discount.
• Step 2: Sell Calls: Once you own the stock, you sell covered calls. The premium is extra income on top of the dividend payments you collect. If the stock rallies above your strike, your shares may be called away, but you still keep the dividend, the premium, and any stock gains up to that strike.

These are the wheel strategy options at play: steady premium income, reliable dividends, and potential stock appreciation. This way, you’re stacking three potential income streams: option premiums, dividends, and price appreciation. The real power comes when you pair the wheel with dividend yield analysis, using yield levels to time your entries so you’re buying in at stronger, safer points.

We’ll also be publishing a deep dive on the wheel strategy soon, showing exactly how to put this approach into practice. If you’re into dividend investing, it’s definitely worth a look.

Methodology and Limitations: What Dividend Yields Tell You (and What They Don't Tell You)

Before closing this analysis, it’s important to look at the other side of the coin. Dividend aristocrats are famous for their reliable payouts and strong track records, but no strategy is bulletproof, especially if you rely only on dividend yield data.

Here are a few risks to keep in mind:

• Market Changes: Past performance doesn’t guarantee future results. Shifts in the economy or industry can change a company’s outlook.
• Company-Specific Risks: Even long-time dividend payers can hit unexpected bumps that affect their ability to keep raising payouts.
• Yield Volatility: Dividend yields often rise when stock prices fall. A “high yield” isn’t always a good thing, it may just signal a cheaper stock.
• Maturity & Obsolescence: Many aristocrats are older, established companies. Over time, some may lose their edge in the face of new technologies or changing markets.

That’s why the wheel strategy dividend stocks approach can be a smarter way to express a bullish view than simply buying shares outright.

The takeaway: historical dividend yields are useful, but they shouldn’t be your only guide. That said, if you’re bullish on a company, the wheel strategy can be a smarter way to express that view than simply buying the stock. It gives you multiple income streams and a systematic approach to going long.

Run Your Own Backtest

Predefined scan: Sell high prob puts on Dividend Aristocrats

The Wheel Options Strategy: Your Comprehensive Guide to Steady Income Generation

Perform your own backtest with our free Colab file

Frequently Asked Questions on the Wheel Strategy

What is the wheel strategy for dividend stocks?

The wheel strategy involves selling a cash-secured put on a stock or ETF you wouldn’t mind owning. If assigned, you buy the shares and then sell a covered call while earning dividends. It’s ideal for dividend payers with strong fundamentals and offers a systematic way to combine dividend income with options premiums.

Can you make money with the wheel strategy?

Yes, the wheel strategy offers income from selling puts, covered calls, and dividends. It’s effective with high yield dividend stocks or ETFs with low volatility and strong balance sheets, making it a reliable method for generating returns.

Is the wheel a bullish strategy?

Yes, the wheel strategy is bullish, as it relies on the stock remaining stable or appreciating. It's one of the best strategies to trade dividend stocks or growth stocks that offer strong fundamentals and dividend income.

Which stock is best for wheel strategy?

There’s no single best stock for the wheel strategy, but dividend stocks with strong balance sheets should be prioritized. In practice, dividend aristocrats are often considered the best dividend stocks for wheel strategy, since their stability and payout history make them reliable candidates. These stocks offer great dividend income while providing stability when holding the stock.