dividend yield on Apple Feb 11, 2011 Dividend Yield Of 10% On Apple (AAPL)

You own Apple. Good for you. Great company. Insanely great stock.

Sadly, the dividend yield on Apple is 0%.

Or is it?

We're going to show you how to generate pretty much any reasonable dividend yield you want with AAPL and still leave yourself some upside potential.

With AAPL closing at 356.85 today, this table shows how big the annual dividend would need to be to attain various yield levels:

Dividend Yield Annual Dividend Monthly Dividend
3% 10.71 0.89
5% 17.84 1.49
8% 28.55 2.38
10% 35.69 2.97

So, for example, if we want a 10% dividend yield from AAPL all we need to do is generate 35.69/year, or 2.97/month, in covered call premium.

In order to compare options with different expiration dates we convert the annual premium into a daily value: $35.69/365 = 9.8 cents per day. So, to achieve 10%/year yield we need to generate 9.8 cents per day in call premium.

Here are three AAPL options that pay 9.8 cents per day or more:

Expiration Strike Call Bid Days Cents/Day Upside Potential
Mar 19 370 4.30 33 13.0 13.15 (3.7%)
Apr 16 375 6.85 61 11.2 18.15 (5.1%)
May 21 380 9.95 96 10.4 23.15 (6.5%)

You could pick any of those to generate over 10% annual yield from AAPL and still have between 3.7% and 6.5% upside potential during the next 3 months. (One thing to keep in mind is that next earnings is Apr 20 so the May option cycle includes an earnings report.)

Want more upside potential? Then accept a smaller yield. If you only want a 5% dividend yield from AAPL then you need 4.9 cents per day in premium, and could choose any of these:

Expiration Strike Call Bid Days Cents/Day Upside Potential
Mar 19 380 2.01 33 6.1 23.15 (6.5%)
Apr 16 390 3.25 61 5.3 33.15 (9.3%)
May 21 400 4.80 96 5.0 43.15 (12.1%)

By accepting a 5% yield you give yourself between 6.5% and 12.1% upside potential over 3 months (and, again, the May options include an earnings release so be sure to consider that).

How high can the yield go? The at-the-money AAPL options (360 strikes for next 3 months) have an annualized return if flat of 20% to 24%. You would give up virtually all of your upside potential, but could still make around 22%/year in call premium.

Generally it's a good idea to write near term options so that you can reset the strike price once a month and take advantage of short-term option decay. But it depends on your commission schedule and how much time you want to invest. Even on a completely passive portfolio, covered calls are a good way to increase the "dividend" yield on any stock.

We also have updated info on using covered calls to generate dividend income on AAPL.

Like this post? Click the +1 button to recommend it. Thanks!

Free Trial | Covered Call Newsletter | Covered Call Blog | Bookmark and Share