Today, 6/7/12, I BTC 2 IR Sep12 $40 Covered Calls and STO 2 IR Dec12 $41 Covered Calls for a net deposit of $88.94 in an IRA account. My basis for these IR shares is now $45.96, excluding dividends received. In addition to the increase in my strike price by $1 these transactions represent a simple return of about .96% and an annualized return of about 1.77% on my prior basis.
With IR going ex-dividend next week and IR trading just over $41 I decided to go ahead and roll it out and up a little. I could have gone out to Jan13 with a $45 strike for a net credit but decided to do the Dec12 $41 to capture a little additional option premium. IR moves up and down enough that I might have been safe (i.e. not called away) next week but decided to go ahead now anyway.
S&P currently has a 12-month price target of $56 for IR and a Buy rating. MarketEdge has a price opinion of $30.65 and a Long recommendation, exactly the same as it had last February. The 19 Yahoo Analysts have a 12-month target of $45.63 and a recommendation of 2.3 where 1.0 is a Strong Buy and 5.0 is a Strong Sell.
IR raised its quarterly dividend twice in the past 18 months and now pays .16 per quarter which is about a 1.56% annual yield at it current price of $40.93. My return will be about 1.39% on my new basis. That is not stellar. IR’s dividend was .18 per quarter as recently as May 2009. Even at .18 IR’s dividend is not great. Over time, unless called away sooner, my basis will decline as I continue to sell new Covered Calls and the dividend yield on my basis will improve. The Call option premium will also increase my actual return on my investment in the stock.