YieldBoost WPP From 1.3% To 14.4% Using Options

Shareholders of Wausau Paper Corp ( WPP) looking to boost their income beyond the stock's 1.3% annualized dividend yield can sell the October covered call at the $10 strike and collect the premium based on the 45 cents bid, which annualizes to an additional 13.1% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 14.4% annualized rate in the scenario where the stock is not called away. Any upside above $10 would be lost if the stock rises there and is called away, but WPP shares would have to climb 6% from current levels for that to happen, meaning that in the scenario where the stock is called, the shareholder has earned a 10.8% return from this trading level, in addition to any dividends collected before the stock was called.

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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 Wausau Paper Corp, looking at the dividend history chart for WPP 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 1.3% annualized dividend yield.

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