Iron Mountain is in IBD's Dividend Leaders screen with an above-average yield of 5.1% and was recently featured as a top dividend play.
IRM stock is flat over the last month compared with the S&P 500 index, which was down 4.5% through Tuesday's close.
According to the IBD Stock Checkup, IRM stock is ranked No. 1 in its group and has a Composite Rating of 91, an EPS Rating of 82 and a Relative Strength Rating of 88.
Income investors can further enhance the yield on the stock through the use of covered calls. Let's look at how a covered call trade on Iron Mountain might take shape.
Buying 100 shares of IRM stock would cost around $4,870.
An April-expiration, 50-strike call option was trading Tuesday around $1.25, generating $125 in premium per contract.
Selling the call option generates an income of 2.64% in just under one month, equaling around 33.17% annualized. That is in addition to the 5.1% annualized dividend yield.
If IRM stock closes above 50 on the expiration date, the shares will be called away at 50, leaving the trader with a total profit of $255 (the gain on the shares plus the $125 option premium received).
That equates to a 5.42% return, which is 68.20% on an annualized basis.
Covered Calls As Income Boosters
Of course, the risk with the trade is that the IRM stock might drop, which could wipe out any gains made from selling the call.
Investors looking to increase their income can use covered calls and cash secured puts on high dividend stocks.
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.
Gavin McMaster has a Masters in Applied Finance and Investment. He specializes in income trading using options, is very conservative in his style and believes patience in waiting for the best setups is the key to successful trading. Follow him on Twitter at @OptiontradinIQ
