Double Your Cash Flow On Big Bank Dividends With 10% High-Yield Options

If you're interested in short-term trading exposure to big banks, here are three big names which all have attractive options-selling yields - SunTrust Banks (STI), Comerica (CMA), and JPMorgan (JPM).


JPMorgan Chase is the biggest bank in the US, with a market cap of ~$347B, but it operates as a financial services company worldwide. It operates through four segments: Consumer and Community Banking, Corporate and Investment Bank, Commercial Banking, and Asset and Wealth Management. It's also one of our oldest banks, founded in 1799 and is headquartered in New York.

SunTrust Banks operates as the holding company for SunTrust Bank that provides various financial services for consumers, businesses, corporations, and institutions in the United States. It operates through two segments, Consumer and Wholesale. It has a strong southeastern US regional footprint, with more than 1,250 full-service banking offices located in Florida, Georgia, Virginia, North Carolina, Tennessee, Maryland, South Carolina, and the District of Columbia. It was founded in 1891 and is headquartered in Atlanta, Georgia.

Comerica operates through three segments: Business Bank, the Retail Bank, and Wealth Management. It operates in Texas, California, and Michigan, as well as in Arizona and Florida, Canada, and Mexico. Comerica Incorporated was founded in 1849 and is headquartered in Dallas, Texas.


With the S&P 500 up 5.17% year to date, as of 1/24/19, STI and CMA have both vastly outperformed the market, rising ~20% and 18% respectively, while JPM has kept pace with the market, with a 5.18% year to date return.

STI and CMA also outperformed the Financials sector's 7.2% return so far in 2019, whereas JPM has underperformed.

However, all three of these big bank stocks have lagged the market's -7.25% return over the past year, with STI losing -13.34%, CMA down -14.79%, and JPM down - 10.19%:

Analysts' Price Targets and Estimates:

We looked at where these stocks are in relation to analysts' average price targets for them. Laggard JPM has the biggest gap, 12.32%, between its current price and the average price target of $115.35, while STI, with the much larger price gains, is both ~9% below the respective price targets.

CMA has the most positive earnings estimate revisions number of the trio, with 18 to 23 upward revisions and no downward ones for Q1 - 2 '19, and full years 2019 and 2020:

STI is the runner up, with ~80 to 90%-plus upward revisions for those periods. With all of those upward revisions, it's easy to see why STI and CMA have outperformed over the past month and year to date.

Contrast that with JPM's marks - although it's a much bigger company, it had way fewer revisions over the past month. However the revisions were mainly upbeat, ranging from 71% increases for Q1 '19, to 93% for Q2 '19. Oddly, though, the average EPS consensus actually decreased for Q1 '19, and full years 2019 and 2020:

(source: Yahoo Finance)


STI has the lowest trailing P/E, at 10.35, but CMA's forward 2019 P/E leads the pack, at 9.89, due to its estimated 13.5% growth for 2019. STI also has the lowest price/book, at 1.26X. All three of these banks' P/E and P/book valuations are significantly lower than broad industry averages.


STI has the highest five-year dividend growth rate, at 41.70%, followed by CMA, at 23.95%, and JPM's 19.36% figure, which is below the industry average of 23.18%.

The yields are all quite similar, running from 3.12% for JPM, to 3.29% for CMA, to 3.28% for STI. They also all have low dividend payout ratios, in the 21% to 29% range, although these are above the broad industry average of 18.10%.


All three banks have an ROA above the 1X threshold, with STI's being the strongest, at 1.37%. STI also has the highest ROI, at 13.50%, although its operating margin is the lowest of the group, at 32%.


Covered Calls - Those 3%-plus yields are pretty good, but you can do better, on a short-term basis, via selling covered calls. The caveat is that doing so will limit your upside gains to the difference between the underlying stock's price/share and whatever call strike price you sell at.

We added these three trades to our free Covered Calls Table, where you can track these and over 35 other call-selling trades, as we update them throughout each trading day.

CMA's April $85.00 call pays $1.61, 2.4X more than CMA's $.67 quarterly dividend.

Although there's a juicier $82.50 April call strike that pays $2.83, we chose the $85.00 strike, since it puts you closer to the $88.81 average price target for CMA.

This table details the three profitable scenarios for this trade:

Static - If CMA doesn't rise to or above $85.00 before the ex-dividend or option expiration dates, you'd keep your CMA shares, and have a profit of $2.28, a 2.81% yield in just under three months, or 8.43% annualized.

Assigned - If CMA does rise to or above $85.00 before the ex-dividend or option expiration dates, your shares would be assigned/sold, and your final profit would be much higher, $5.53, comprised of the $1.61 call option premium and the $3.92 price gain.

Assigned post ex-dividend date - this is the trifecta - less likely to happen, but we've seen it occur in the past. In this case, CMA rises to or above $85.00 after the ex-dividend date. You'd end up with a $6.20 profit, comprised of all three income/profit streams - the $.67 dividend, the $3.92 price gain, and, as usual, the $1.61 call option premium:

For JPM, we chose a much closer at the money call strike price of $105.00, for comparison sake. This April call strike is just $2.56 above JPM's $102.44 price/share, but has a much higher payout of $3.05.

In this case, your three-month static yield would be 3.76%, or 15.95% annualized, your assigned pre- ex-dividend date yield would be 5.48%, or ~22% annualized, and your post ex-dividend date assigned yield would be 6.26%, or 26.56% annualized.

Which option strike to choose comes down to your prognosis for the underlying stock's price/share. If you think that the analysts' average $115.35 average price target for JPM is too high, and you want to amp up your option premium, you'd sell at a lower, at the money call strike, such as this April $105.00 strike.

But if you want to have more price gain exposure, you'd sell at a higher call strike, such as the April $110, which only pays $1.26, but offers you more potential for price/share gains.

STI also has options available. We added this April $65.00 call strike trade to our table as well. It pays $.96, nearly 2X STI's $.50 quarterly dividend.

Cash Secured Puts:

We also added three put-selling trades to our Cash Secured Puts Table, which has over 40 trades on it, updating throughout each trading day.

Many investors sell puts on stocks which they'd like to own, but at a lower price. You may be surprised that Warren Buffett has used this technique for years, although his put-selling deals are usually off-market, multi-million dollar deals, and can include strikes which don't expire for years. Meanwhile, the Oracle of Omaha gets the tax-deferred use of the put premiums that he collects, and achieves a lower entry price for a target stock.

Here's an at the money April put-selling trade for STI, which pays $2.25, over 4X STI's quarterly dividend, for an annualized yield of 15.92%, and a breakeven of $57.75.

CMA has an April $80.00 put strike which pays a bit more, $2.85, but has a lower yield of 15.12%.

JPM's at the money April $100.00 put strike pays $3.15, for a breakeven of $96.85, which is 6.3% above JPM's 52-week low of $91.11.

If you reverse the call-selling perspective of selling call strikes at a higher price, to have more price gain potential, and apply it to puts, you'd also end up selling puts further out of the money, meaning further below the underlying stock's price/share. You'll get paid less put premium money, but you'll have lower breakeven. This is a strategy our subscribers have utilized for contrarian put-selling trades for several years.


Selling options on dividend stocks can be a useful tool in your income investor arsenal - it offers you another way to create income, albeit on a short-term basis. There are longer-term options, known as LEAPs, which expire in 2020 and 2021, for highly-traded stocks, such as JPM. They pay a lot more than the short-term trades, BUT, you'd better be very sure of your trade thesis to go out that far into the future - a whole lotta stuff can happen before that 2021 expiration date.

If you're new to selling options, we have an Options and Investing Glossary that defines the terms you'll come across in this type of trading.

Disclaimer: This article was written for informational purposes only and is not intended as personal investment advice. Please practice due diligence before investing in any investment vehicle mentioned in this article.

All tables furnished by unless otherwise noted.

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Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in JPM, STI, CMA over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: We may enter into positions for JPM, CMA and STI via selling puts