Covered Calls on AT&T (T)
AT&T (T) might seem like a bizarre choice as a “forever hold” stock because it’s growth appears limited.
However, with the recent DirecTV (DTV) purchase, it will have a new growth engine. T stock also is worth holding because I believe its 5.2% dividend is generous and sustainable. T stock is not a big mover, so you can sell calls against it and still get that dividend — if you sell a call but expiration occurs after the ex-dividend date, you still hold the stock, so you still get the dividend payment.
T stock trades at $35.26. The Aug 8 $35.50 call goes for 31 cents. This is only a 1% return, or 6% annualized. This is a very small premium, which is intentional because T stock tends to be for retirement investors.
However, when you factor in the dividend, it’s an 11.2% return. Then tack on another 24 cents in capital gains if called away, or another 0.6%, lifting the total potential annualized yield to 14.8%.