How To YieldBoost Schlumberger To 4.6% Using Options
Shareholders of Schlumberger Ltd. (Symbol: SLB) looking to boost their income beyond the stock’s 2.2% annualized dividend yield can sell the January 2017 covered call at the $110 strike and collect the premium based on the $3.50 bid, which annualizes to an additional 2.4% rate of return against the current stock price (at Stock Options Channel we call this theYieldBoost ), for a total of 4.6% annualized rate in the scenario where the stock is not called away. Any upside above $110 would be lost if the stock rises there and is called away, but SLB shares would have to climb 21.1% from current levels for that to occur, meaning that in the scenario where the stock is called, the shareholder has earned a 25% return from this trading level, in addition to any dividends collected before the stock was called.
In general, dividend amounts are not always predictable and tend to follow the ups and downs of profitability at each company. In the case of Schlumberger Ltd., looking at the dividend history chart for SLB below can help in judging whether the most recent dividend is likely to continue, and in turn whether it is a reasonable expectation to expect a 2.2% annualized dividend yield.