Today, I am going to make a suggestion on another high-yielding stock.
This time the stock is MFA Financial Inc.(MFA).
MFA is trading at $4.20 as I write this. And it is trading about $1.30 under the lower band on its daily chart. So, it is oversold.
They have announced a 20 cent dividend payable on April 30th, to the shareholders of record as of March 31st.
Assuming this dividend holds into the future, the annual return would be 19%.
But, my suggestion is to buy the stock and sell April's monthly $5 call against the stock position.
They can be sold for $0.40.
If MFA stays under $5 by March 31st, you will collect the dividend, as well as the call premium.
The best-case scenario is you collect the dividend and the call premium and are assigned at $5.
If that happens, the return for about a month will be 33%.
If MFA trades above $5 by the record date, you may get assigned on the calls, which is not a bad thing, but rather a gift, as you would be selling the stock in two weeks.
If MFA stays under the lower band, I will continue to sell more calls.
Because of the overall market sell off, limit the trade to 1,000 shares or 4.2% of the portfolio.