Strategy To YieldBoost Mueller Water Products To 10.5% Using Options
October 21, 2014 at 11:37 AM EDT
Shareholders of Mueller Water Products Inc (MWA) looking to boost their income beyond the stock's 0.8% annualized dividend yield can sell the May 2015 covered call at the $10 strike and collect the premium based on the 50 cents bid, which annualizes to an additional 9.8% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 10.5% annualized rate in the scenario where the stock is not called away. Any upside above $10 would be lost if the stock rises there and is called away, but MWA shares would have to climb 10% from current levels for that to occur, meaning that in the scenario where the stock is called, the shareholder has earned a 15.5% return from this trading level, in addition to any dividends collected before the stock was called.