Strategy To YieldBoost Keurig Dr Pepper To 4.9% Using Options
June 13, 2024 at 11:45 AM EDT
Shareholders of Keurig Dr Pepper Inc (KDP) looking to boost their income beyond the stock's 2.6% annualized dividend yield can sell the January 2026 covered call at the $40 strike and collect the premium based on the $1.25 bid, which annualizes to an additional 2.3% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 4.9% annualized rate in the scenario where the stock is not called away. Any upside above $40 would be lost if the stock rises there and is called away, but KDP shares would have to climb 19% from current levels for that to happen, meaning that in the scenario where the stock is called, the shareholder has earned a 22.7% return from this trading level, in addition to any dividends collected before the stock was called.
