State Street is a $31 Billion market cap company and a leader in the investment services and investment management businesses. As preferred, the next quarterly earnings report for State Street is after the April 14th options expiration date. Analysts' covering the company expect its earnings per share to grow by about 14.6% this year to $8.39 a good forward P/E valuation of 10.3 which compares favorably to its prior 5-year average P/E of 12.9.
Like many large-cap companies in the Financial Sector, State Street provides only modest future compounded growth prospects, but
they currently pay a $.5699 quarterly dividend (2.6% annual dividend yield) with an upcoming March 31st, 2022 ex-dividend date. I seek to establish positions in these low growth and dividend paying companies using my "Dividend Capture Strategy" (in situations where the ex-dividend date is in between the initiation date of the Covered Calls position and the options expiration date). The goal of these "Dividend Capture Strategy" positions is
to either capture the quarterly dividend payment and for the stock
price to remain above the strike price at
options expiration or to have the position assigned early on the
day prior to the ex-dividend date at a higher
annualized-return-on-investment than would be achieved if the position
was instead assigned on its options expiration date. As is true with this position (see chart with 9 criteria at the bottom of this post), this approach
normally provides
higher annualized-return-on-investment results than would be achieved
with either: (1) Covered Calls in these same stocks during their
non-ex-dividend
months; or (2) A basic buy-and-hold stock purchase.
Two potential return-on-investment results for this State Street Covered Calls position are: (a) +2.2% absolute return (equivalent to +60.5% annualized
return for the next 13 days) if the stock is assigned early [on the last trading day prior to the ex-dividend date]; OR (b) +2.9%
absolute return (equivalent to +37.3% annualized return over the next 28
days) if the stock is assigned on the April 14th, 2022 options expiration date.
State Street Corporation(STT) -- New Covered Calls Position
The transactions were:
3/18/2022 Bought 200 State Street shares @ $86.70 per share.
3/18/2022 Sold 2 STT 4/14/2022 $82.50 Call options @ $5.94
Note: the Implied Volatility of these Call options was 33.0 when this position was established.
3/31/2022 Upcoming quarterly ex-dividend of $.5699 per share
Two possible overall performance results (including commissions) for this
State Street Covered Calls position are as follows:
Covered Calls Cost Basis: $16,153.34
= ($86.70 - $5.94) * 200 shares + $1.34 commission
Net Profit Components:
(a) Options Income: +$1,188.00
= ($5.94 * 200 shares)
(b) Dividend Income (If option exercised early on the business day prior to the ex-div date): +$0.00; or
(b) Dividend Income (If State Street shares assigned at April 14th, 2022 expiration): +$113.98
= ($.5699 dividend per share x 200 shares)
(c) Capital Appreciation (If State Street shares assigned early): -$840.00
+($82.50 strike price -$86.70 stock purchase cost) * 200 shares; or
(c) Capital Appreciation (If State Street shares assigned at $82.50 strike price at options expiration): -$840.00
+($82.50- $86.70) * 200 shares
Either outcome would provide an attractive return-on-investment result. These returns will be achieved as long as the stock is above the $82.50 strike price at assignment. If the stock declines below the strike price, the breakeven price of $80.1901 ($86.70 -$5.94 -$.5699) provides 7.5% downside protection below today's purchase price.
At least eight of the nine metrics used in the Covered Calls Advisor's Dividend Capture Strategy spreadsheet (see below) must be 'YES' prior to establishing a new Covered Calls position using the Covered Calls Advisor's Dividend Capture strategy. As shown in the chart below, eight of the nine criteria are achieved for this State Street Covered Calls position.
