Fifth Third Bancorp is a large $32.5 billion market-cap regional bank operating primarily in the Midwest but also in the Southeast U.S. Like many large-cap companies in the Financial Sector, Fifth Third provides only modest future compounded growth prospects, but
they currently pay a $.30 quarterly dividend (2.6% annual dividend yield) with a March 30th, 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 to capture the quarterly dividend payment and for the stock
prices 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.
The average target price of the 22 brokerage company analysts covering Fifth Third is $52.08 (+14.0% above today's purchase price). Like many analysts, I believe regional banks like Truist will benefit this year from increasing consumer loan demand as well as from greater net interest margins from increasing interest rates.
Two potential return-on-investment results for this Fifth Third Bancorp Covered Calls position are: (a) +1.5% absolute return (equivalent to +80.6% annualized
return for the next 7 days) if the stock is assigned early [on the last trading day prior to the ex-dividend date]; OR (b) +2.2%
absolute return (equivalent to +35.5% annualized return over the next 23
days) if the stock is assigned on the April 14th, 2022 monthly options expiration date.
Fifth Third Bancorp (FITB) -- New Covered Calls Position
The transactions were:
3/23/2022 Bought 300 Fifth Third Bancorp shares @ $45.69
3/23/2022 Sold 3 FITB 4/14/2022 $44.00 Call options @ $2.36 per share.
Note: the Implied Volatility of these Call options was 31.2 when this position was established.
3/30/2022 Upcoming quarterly ex-dividend of $.30 per share
Two possible overall performance results (including commissions) for this
Fifth Third Bancorp Covered Calls position are as follows:
Covered Calls Cost Basis: $13,001.01
= ($45.69 - $2.36) * 300 shares + $2.01 commission
Net Profit Components:
(a) Options Income: +$708.00
= ($2.36 * 300 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 FITB shares assigned at April 14th, 2022 expiration): +$90.00
= ($.30 dividend per share x 300 shares)
(c) Capital Appreciation (If Fifth Third shares assigned early): -$507.00
+($44.00 strike price - $45.69 stock purchase cost) * 300 shares; or
(c) Capital Appreciation (If FITB shares assigned at $44.00 strike price at options expiration): -$507.00
+($44.00- $45.69) * 300 shares
Either outcome would provide an attractive return-on-investment result. These returns will be achieved as long as the stock is above the $44.00 strike price at assignment. If the stock declines below the strike price, the breakeven price of $43.03 ($45.69 -$2.36 -$.30) provides 5.8% 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, all nine criteria are achieved for this Fifth Third Bancorp Covered Calls position.
