YieldBoost Tootsie Roll Industries From 1% To 9.9%
August 22, 2013 at 12:26 PM EDT
Shareholders of Tootsie Roll Industries Inc (TR) looking to boost their income beyond the stock's 1% annualized dividend yield can sell the January 2014 covered call at the $35 strike and collect the premium based on the $1.20 bid, which annualizes to an additional 8.9% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 9.9% annualized rate in the scenario where the stock is not called away. Any upside above $35 would be lost if the stock rises there and is called away, but TR shares would have to climb 5.8% from current levels for that to happen, meaning that in the scenario where the stock is called, the shareholder has earned a 9.4% return from this trading level, in addition to any dividends collected before the stock was called.