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Huntington Bancshares' 4.27% Yield Makes It Valuable to Investors

Barchart - Tue Aug 16, 1:49PM CDT
Stocks-Money-Rates - Banks in the Skyline

Huntington Bancshares (HBAN), a regional bank based in Columbus, OH, now has a high dividend yield and a low price-to-earnings multiple. This makes its stock attractive to value investors, especially since investors expect a dividend hike in the fall. In addition, investors can make additional income by selling covered calls on HBAN stock.

As of late Tuesday, Aug. 16, HBAN stock traded at $14.53, giving its 62 cents annual dividend payment a 4.27% dividend yield. Moreover, Huntington Bancshares has now declared four quarterly dividend payments at 15.5 cents per quarter with its latest July 21 announcement. 

Photo by Jonathan Cooper on Unsplash

Expect a Dividend Hike

Given that it has raised its dividend every year for the past 11 years, investors can feel fairly confident it will hike the dividend again. During the Covid period it kept its dividend level at 15 cents per quarter. But last October the dividend rose 3.33% to 15.5 cents.

If Huntington Bancshares were to raise the quarterly dividend again, I suspect it will be to at least 16 cents per quarter, or by 3.22%. 

That will give it an annual dividend of 64 cents, and at today's price, the dividend yield will be 4.40%. That makes HBAN stock very attractive to value investors.

Cheap Prospects

In addition, analysts are now very positive about the bank's prospects. For example, the average estimate of 8 analysts by Barchart is for earnings per share (EPS) to reach $1.46 this year, and $1.52 next year.

That puts HBAN stock on a cheap forward multiple of just 9.95x for 2022 and even lower at 9.56x for 2023. So, given its high yield and rate increase prospects and its low P/E multiples, this stock is very attractive to value investors.

Moreover, the stock also has a good covered call income play.

Covered Call Income Play

Investors can make additional income by selling out-of-the-money covered calls on HBAN stock. For example, look at the Barchart call option chain table below.

HBAN - Calls expiring Sept. 16 - Barchart - as of Aug. 16

This shows that the $17.00 strike price, which is over 10% higher than today, offers a 38-cent premium to investors who sell this call on a covered call basis. For example, if an investor were to spend $1,453 to buy 100 shares of HBAN stock, they can then sell one call option contract at the $17.00 strike price and immediately receive $38. 

That represents an income of 2.615% for the month. Assuming the stock does not reach $17.00 by the Sept. 16 expiration, the investor's call option will not be exercised. So, theoretically, if that can be repeated each month the annualized yield is 31.38%. This is also on top of the 4.27% yield that the investor would make from dividends.

And even if the stock rises to $17.00 or higher, the investor gets to keep the 10.17% capital gain. Moreover, the covered call income helps hedge the investor's holdings in case the stock falls from today's price. This shows that the covered call income enhances a value investor's potential return on this stock.



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Provided Content: Content provided by Barchart. The Globe and Mail was not involved, and material was not reviewed prior to publication.