Consolidated Edison (ED) is one of the best dividend stocks to buy now. ED stock is currently showing an annualized dividend yield of 3.43% and has increased its dividend for an amazing 46 straight years.
Earnings per share are also expected to increase from $4.39 to $4.50 and $4.83 in 2022 and 2023.
Using options, we can generate an additional income from high yielding stocks via a covered call strategy.
ED Covered Call Example
Let’s look at two different covered call examples on ED stock. The first will use a monthly expiration and the second will use a six-month expiration.
Let’s evaluate the first ED covered call example. Buying 100 shares of ED would cost around $9,080. The August 19, 92.50 strike call option was trading earlier today around $1.40, generating $140 in premium per contract for covered call sellers.Â
Selling the call option generates an income of 1.57% in 28 days, equalling around 20.41% annualized. That assumes the stock stays exactly where it is. What if the stock rises above the strike price of 92.50?
If ED closes above 92.50 on the expiration date, the shares will be called away at 92.50, leaving the trader with a total profit of $308 (gain on the shares plus the $140 option premium received). That equates to a 3.44% return, which is 44.90% on an annualized basis.Â
Instead of the August 92.50 call, let’s look at selling the January 42.50 call instead. Selling the 42.50 call option for $4.75 generates an income of 5.52% in 182 days, equalling around 11.07% annualized. If ED closes above 92.50 on the expiration date, the shares will be called away at 92.50, leaving the trader with a total profit of $643 (gain on the shares plus the $475 option premium received).
That equates to a 7.47% return, which is 14.98% on an annualized basis.
These figures don’t include any potential dividends received during the course of the trades.
Of course, the risk with the trade is that the ED might drop, which could wipe out any gains made from selling the call.
Barchart Technical Opinion
The Barchart Technical Opinion rating is a 16% Buy with a weakest short term outlook on maintaining the current direction.Â
Implied volatility is at 23.36% compared to a 12-month low of 15.58% and a 12-month high of 28.05%.Â
Company Description
Consolidated Edison, Inc. is a diversified utility holding company, with subsidiaries engaged in both regulated and unregulated businesses. Its regulated businesses operate through its subsidiaries: Consolidated Edison Company of New York (CECONY), Orange and Rockland Utilities (O&R), Con Edison Clean Energy Businesses, Inc. and Con Edison Transmission, Inc. CECONY provides electricity and natural gas to customers. CECONY operates the largest steam distribution system in the U.S. O&R Utilities provides electricity and gas in New York, New Jersey and Pennsylvania. Clean Energy Businesses develop, own and operate renewable and sustainable energy infrastructure projects and provide energy-related products and services to wholesale and retail customers. Con Edison Transmission invests in electric transmission projects and manages both electric and gas assets through its wholly owned subsidiaries, Consolidated Edison Transmission, LLC and Con Edison Gas Pipeline and Storage, LLC.
Of the 9 analysts following the stock, 1 rates it as a Strong Buy, 3 rate it a Hold, 1 a Moderate Sell and 4 a Strong Sell.
Covered calls can be a great way to generate some extra income from your core portfolio holdings.
Use this screener to find other top dividend stocks to buy now.
Please remember that options are risky, and investors can lose 100% of their investment. This article is for education purposes only and not a trade recommendation. Remember to always do your own due diligence and consult your financial advisor before making any investment decisions.
*Disclaimer: On the date of publication, Steven Baster did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. Data as of after-hours, July 21, 2022.
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