Hecla Mining Offers Covered Call with 7.6% Yield Boost Potential

A report highlights the income-boosting strategy for Hecla Mining Co shareholders through selling covered calls. With a current dividend yield of 0.9% and a potential total return of 7.6%, investors may find this an appealing option despite the risks of losing upside.

Date: 11-12-2024

AI Rating: 7

The report discusses a potential income strategy for shareholders of Hecla Mining Co (HL), emphasizing the opportunity to enhance returns through covered call options. Specifically, shareholders can sell a January 2026 covered call at a $10 strike price, gathering a premium of 43 cents, which translates to an annualized additional return of 6.7% on top of the current 0.9% annualized dividend yield. This combined approach results in a total potential annualized return of 7.6%.

However, it is noted that any capital appreciation beyond the $10 strike price would be forfeited if the stock is called away, indicating a substantial 70.9% increase in stock price is needed for this scenario. Despite this risk, if the stock is called at the mentioned strike, shareholders could realize a total return of 78.3% from current levels, inclusive of prior dividends.

The analysis also touches on the unpredictability of dividends, which usually correlate with the company’s profitability. The report implies that the sustainability of HL's 0.9% annualized yield depends on these profit levels. Therefore, monitoring the dividend history chart becomes essential for investors considering this yield.

Additionally, the report mentions HL's trailing twelve month volatility of 53%, which could serve as a guideline when assessing the risk-reward profile of this covered call strategy.

The overall sentiment portrayed in the report is cautiously optimistic, as it delineates a method for potentially boosting income while outlining the inherent risks associated with trading options.

Stocks: HL