FRT Options Strategies Offer Dividends and Potential Gains

Investors in Federal Realty Investment Trust have options to increase their income beyond the current dividend yield by utilizing covered calls. The report highlights a strategy for generating returns while considering potential stock price movements.

Date: 13-11-2024

AI Rating: 7

The report discusses Federal Realty Investment Trust (FRT) and its current investment strategy involving covered call options. Shareholders looking to enhance their income can sell May 2025 covered calls at the $120 strike for a premium of $4.00, leading to an annualized return of 6.9%. When combined with the stock's 3.8% dividend yield, this presents a total potential annualized return of 10.8% if the stock is not called away.

Furthermore, if the stock price climbs above $120 (which is a 4.7% increase from current levels), shareholders could still achieve an 8.2% return, factoring in both dividends and the appreciated stock price. However, they would lose any upside beyond the $120 threshold.

The report notes that dividend reliability can be unpredictable and is closely linked to the company's profitability, which can affect expectations regarding the dividend yield. Hence, closely observing FRT’s dividend history becomes useful for investors assessing the sustainability of the 3.8% yield.

FRT’s historical volatility is calculated at 18%, which, combined with technical analysis of the stock's trading history, can assist investors in determining the risk-reward tradeoff of selling covered calls.

Additionally, the report mentions trading activity among S&P 500 components highlighting a higher call volume with a put:call ratio of 0.50 against the long-term median of 0.65, indicating a bullish sentiment among traders as they favor calls over puts.

Stocks: FRT