YieldBoost Ruth's Hospitality Group From 1.7% To 15.3% Using Options
October 29, 2014 at 11:56 AM EDT
Shareholders of Ruth's Hospitality Group Inc (RUTH) looking to boost their income beyond the stock's 1.7% annualized dividend yield can sell the February 2015 covered call at the $12.50 strike and collect the premium based on the 50 cents bid, which annualizes to an additional 13.6% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 15.3% annualized rate in the scenario where the stock is not called away. Any upside above $12.50 would be lost if the stock rises there and is called away, but RUTH shares would have to climb 6% from current levels for that to happen, meaning that in the scenario where the stock is called, the shareholder has earned a 10.3% return from this trading level, in addition to any dividends collected before the stock was called.