How To YieldBoost Rent-A-Center To 12.6% Using Options

Shareholders of Rent-A-Center Inc. ( RCII) looking to boost their income beyond the stock's 3% annualized dividend yield can sell the September covered call at the $35 strike and collect the premium based on the 85 cents bid, which annualizes to an additional 9.6% rate of return against the current stock price (at Stock Options Channel we call this the YieldBoost), for a total of 12.6% 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 RCII shares would have to climb 10.5% from current levels for that to occur, meaning that in the scenario where the stock is called, the shareholder has earned a 13.2% 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 Rent-A-Center Inc., looking at the dividend history chart for RCII 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 3% annualized dividend yield.

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