2 Financial Stocks With High Yields and Covered Call Income Plays
These 2 financial stocks have attractive high dividend yields, with low P/E and P/BV valuations, and covered call income plays. They are OneMain Holdings (OMF) which has a 9.13% dividend yield and Huntington Bancshares (HBAN) with a 4.75% yield.
OneMain Holdings (OMF)
OneMain Holdings (OMF) is a financial lender and an insurance company based in Evansville, IN, that makes loans to lower credit quality borrowers and for auto loans. The company is extremely profitable and is likely to continue to be, recession or not.
Analysts forecast earnings this year of $8.55 per share, and just slightly lower at $8.51 next year. This puts OMF stock on a very low forward P/E multiple of just 4.75x for both years.
Moreover, the company pays a dividend of $3.80 per share. So, earnings still cover the dividend payments very well. Its payout ratio is reasonable at just 44%.
More importantly, its dividend yield is 9.13%. This looks sustainable as long as earnings stay level next year.
This makes OMF stock one of the best fintech stocks to buy given its inexpensive metrics. For example, TipRanks reports that 10 Wall Street analysts have an average price target of $57.80, or 39% over today's price of $41.58.
In addition, the stock has a good covered call income opportunity.
For example, the above table shows that the $60 strike price, which is over the price target mentioned above, offers a 40-cent premium, which is almost 1% of the stock price (i.e., 0.962%). Based on this, assuming it can be repeated every month, the covered call income offers an annual yield of 11.54%.
That assumes that the stock does not rise to $60 before the expiration within 31 days. Even if it does, the covered call investors collect an additional capital gain of 44.3%. In addition, the investors get to keep the covered call income and the dividend yield income.
Huntington Bancshares (HBAN)
Huntington Bancshares (HBAN) is a regional bank based in Columbus, OH, and is very cheap with good earnings prospects.
For example, analysts now forecast that earnings will rise from $1.39 to $1.49 per share. So, at $13.04 per share, this puts HBAN stock on an inexpensive forward P/E multiple of 9.38x for 2022 and 8.75x for 2023x.
Moreover, the company pays 15.5 cents quarterly, which equals 62 cents annually, and gives the stock a healthy 4.75% dividend yield. The dividend is well covered by earnings as the payout ratio is just 44.6%. So even if a recession has an effect on its growth rate, which, so far analysts are not forecasting, the company should be able to afford the dividend.
Moreover, its TBVPS is $7.60 as of March 31, which puts the stock on a reasonable P/TBVPS ratio of 1.72x. This shows that Wall Street has a lot of confidence in its earnings. In fact, TipRanks reports that the average price target is $14.90, or 14.3% over today’s price.
In addition, investors may want to sell out-of-the-money covered calls.
This shows that the $16 strike price for the Aug 19 calls will provide $15 per call contract or 1.15% of the stock price at $13.04. That works out to an annualized yield of 13.8% if the covered call play can be done every month with being exercised if the stock rises to $16.00 by expiration. Even if the stock rises to this point, the investor collects an additional 22.7% (i.e., $16/13.04). That provides a very good return to value investors in HBAN stock.
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