How To YieldBoost KND To 15.7% Using Options
December 22, 2014 at 11:41 AM EST
Shareholders of Kindred Healthcare Inc (KND) looking to boost their income beyond the stock's 2.6% annualized dividend yield can sell the May 2015 covered call at the $20 strike and collect the premium based on the 95 cents bid, which annualizes to an additional 13.1% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 15.7% annualized rate in the scenario where the stock is not called away. Any upside above $20 would be lost if the stock rises there and is called away, but KND shares would have to climb 8.9% from current levels for that to occur, meaning that in the scenario where the stock is called, the shareholder has earned a 14.1% return from this trading level, in addition to any dividends collected before the stock was called.