How To YieldBoost Peabody Energy Corp From 1.6% To 8.4%
Shareholders of Peabody Energy Corp (BTU) looking to boost their income beyond the stock's 1.6% annualized dividend yield can sell the January 2015 covered call at the $27 strike and collect the premium based on the $2.39 bid, which annualizes to an additional 6.8% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 8.4% annualized rate in the scenario where the stock is not called away. Any upside above $27 would be lost if the stock rises there and is called away, but BTU shares would have to advance 27.5% from current levels for that to occur, meaning that in the scenario where the stock is called, the shareholder has earned a 38.8% return from this trading level, in addition to any dividends collected before the stock was called.
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