YieldBoost Dr Pepper Snapple Group From 2.6% To 7.5% Using Options

Shareholders of Dr Pepper Snapple Group Inc (DPS) looking to boost their income beyond the stock's 2.6% annualized dividend yield can sell the May 2015 covered call at the $70 strike and collect the premium based on the $1.80 bid, which annualizes to an additional 5% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 7.5% annualized rate in the scenario where the stock is not called away. Any upside above $70 would be lost if the stock rises there and is called away, but DPS shares would have to advance 9.3% from current levels for that to happen, meaning that in the scenario where the stock is called, the shareholder has earned a 12.1% return from this trading level, in addition to any dividends collected before the stock was called.