How To YieldBoost DHC From 1.5% To 15.8% Using Options
June 26, 2024 at 12:17 PM EDT
Shareholders of Diversified Healthcare Trust (DHC) looking to boost their income beyond the stock's 1.5% annualized dividend yield can sell the January 2026 covered call at the $3.50 strike and collect the premium based on the 60 cents bid, which annualizes to an additional 14.3% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 15.8% annualized rate in the scenario where the stock is not called away. Any upside above $3.50 would be lost if the stock rises there and is called away, but DHC shares would have to advance 30.1% from current levels for that to occur, meaning that in the scenario where the stock is called, the shareholder has earned a 52.4% return from this trading level, in addition to any dividends collected before the stock was called.