Strategy To YieldBoost TRGP From 2.5% To 6.4% Using Options
June 17, 2024 at 11:34 AM EDT
Shareholders of Targa Resources Corp (TRGP) looking to boost their income beyond the stock's 2.5% annualized dividend yield can sell the December 2025 covered call at the $145 strike and collect the premium based on the $7.00 bid, which annualizes to an additional 3.9% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 6.4% annualized rate in the scenario where the stock is not called away. Any upside above $145 would be lost if the stock rises there and is called away, but TRGP shares would have to advance 21.1% from current levels for that to occur, meaning that in the scenario where the stock is called, the shareholder has earned a 27% return from this trading level, in addition to any dividends collected before the stock was called.