How To YieldBoost Kindred Healthcare To 14.3% Using Options
March 28, 2014 at 11:39 AM EDT
Shareholders of Kindred Healthcare Inc (KND) looking to boost their income beyond the stock's 2.1% annualized dividend yield can sell the August covered call at the $25 strike and collect the premium based on the $1.10 bid, which annualizes to an additional 12.2% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 14.3% annualized rate in the scenario where the stock is not called away. Any upside above $25 would be lost if the stock rises there and is called away, but KND shares would have to advance 7.4% 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.