YieldBoost Wendy's From 2.4% To 7.2% Using Options
October 21, 2014 at 11:40 AM EDT
Shareholders of Wendy's Co (WEN) looking to boost their income beyond the stock's 2.4% annualized dividend yield can sell the January 2016 covered call at the $10 strike and collect the premium based on the 50 cents bid, which annualizes to an additional 4.8% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 7.2% 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 WEN shares would have to climb 18.3% from current levels for that to happen, meaning that in the scenario where the stock is called, the shareholder has earned a 24.3% return from this trading level, in addition to any dividends collected before the stock was called.