How To YieldBoost Meritage Homes From 1.5% To 16.3% Using Options
September 18, 2024 at 11:37 AM EDT
Shareholders of Meritage Homes Corp (MTH) looking to boost their income beyond the stock's 1.5% annualized dividend yield can sell the March 2025 covered call at the $220 strike and collect the premium based on the $15.10 bid, which annualizes to an additional 14.8% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 16.3% annualized rate in the scenario where the stock is not called away. Any upside above $220 would be lost if the stock rises there and is called away, but MTH shares would have to climb 8.6% from current levels for that to happen, meaning that in the scenario where the stock is called, the shareholder has earned a 16.1% return from this trading level, in addition to any dividends collected before the stock was called.