YieldBoost Dover From 2.2% To 9.7% Using Options
June 23, 2015 at 11:34 AM EDT
Shareholders of Dover Corp (DOV) looking to boost their income beyond the stock's 2.2% annualized dividend yield can sell the December covered call at the $75 strike and collect the premium based on the $2.65 bid, which annualizes to an additional 7.5% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 9.7% annualized rate in the scenario where the stock is not called away. Any upside above $75 would be lost if the stock rises there and is called away, but DOV shares would have to advance 3.8% from current levels for that to happen, meaning that in the scenario where the stock is called, the shareholder has earned a 7.5% return from this trading level, in addition to any dividends collected before the stock was called.