Verizon Communications (VZ) is a great play on the continued explosive growth in smart phones. The recent new iPhone S roll-out from Apple could spark another round of stock price growth in the wireless carriers and Verizon is the top dog.
I see VZ as a growth stock that throws off some income – the yield is a reasonable 4.4% but the appreciation potential for the shares is much better than for most income stocks. I first recommended VZ at $40.60 and it is now almost $48 per share. You get the point. I still see it running to $64 or more in a year or two.
And along the way, you can generate some serious income selling weekly or monthly calls.
A consistent way to generate profits
Here is some simple math and a way to “double your dividend” income from owning Verizon stock.
Buy shares of VZ for around $47.70 and immediately turn around and sell the VZ October $48 calls ahead of the ex-dividend date on October 8th. The calls are going for around $.74 per share or $74 per contract that you sell. You will also be eligible to collect the dividend of $.53 per share or $53 for each 100 shares of VZ that you own (the dividend is paid on October 31st).
If VZ stock price increases over the next month of October, its possible you may get called out. If you do, you keep the October call premium of $74 you collected, the $53 of dividend payment and roughly $30 per every 100 shares in the difference between the price you paid for VZ of around $47.70 and being called out at $48.
Add that up and you come up around $157 in cash or a 3.3% return from this simple income trade in less than 3 weeks, and if do that every quarter, that’s a potential 13% of income from a relatively low dividend paying stock. Not bad turning Verizon from a 4.4% dividend payer into 13.1% income booster.
The typical options trader prays for a 100% return because that is what all the expensive books tell them they should shoot for. How many options traders can consistently generate profits that end up being 100%, on an annualized basis?
On the other hand, consider the options seller owning an income stock that is appreciating and generating between 15% and 48% a year, depending on the market and how busy they want to be. That is something I can relate to.