ConocoPhillips Has a 3.42% Annual Yield, however Brief-Put Buyers Can Make 1.5% Month-to-month

ConocoPhillips (COP) inventory has a 3.42% dividend yield, effectively under its 5-year common. In consequence, its worth goal is at the very least 29% increased at $126.65 primarily based on this yield. However, traders can promote quick out-of-the-money (OTM) put choices and earn about 1.5% month-to-month.

COP closed at $98.19 on Friday, Jan. 16. It has closed as little as $90.16 within the final month (December 16) and usually traded in a variety between $90 and $100 for the previous 2 months.

Nonetheless, since Nov. 6, 2025, when ConocoPhillips raised its quarterly dividend by 7.69% to 84 cents from 78 cents (i.e., $3.36 annual dividend per share or DPS), COP inventory has been slowly shifting increased.

That is doubtless as a result of its annual dividend yield remains to be a lot increased than its historic common. That suggests that COP inventory has a better worth goal.

I mentioned this level and the thought of shorting OTM places in my Dec. 19, 2025, Barchart article (“ConocoPhillips Inventory Nonetheless Appears 18% Undervalued – The way to Play COP Inventory?“) and a previous Nov. 21, 2025, Barchart article.

For instance, Yahoo! Finance experiences that COP has had a mean dividend yield of 2.53% over the past 5 years. That’s effectively under at the moment’s yield of 3.42% (i.e., $3.36 DPS/$98.19).

As well as, Morningstar says COP has had a 5-year historic common of 2.29%. Nonetheless, Looking for Alpha says the common has been 3.14%.

So, on common, these surveys present that the 5-year common yield has been 2.653%.

Due to this fact, if we assume that over time, COP inventory will rise and decrease its 3.42% yield in order that it reaches 2.653%, right here is the value goal (PT):

 $3.36 DPS / 0.02653 = $126.65 PT

That’s 29% increased than at the moment’s worth:

$126.53 PT / $98.19 at the moment = 1.291 -1 = +29.1% upside

In different phrases, there’s nonetheless good upside in COP inventory, even when oil and gasoline costs keep flat or fall. This assumes that the market feels that its common yield must be 2.653%.

However, simply to be conservative, let’s assume the yield approaches 3.0%:

$3.36 DPS / 0.03 = $112.00 PT

That’s nonetheless 14% increased than at the moment’s worth. The underside line is that the COP inventory could possibly be undervalued.

One solution to play this, to achieve additional revenue and set a decrease potential buy-in level, is to promote quick out-of-the-money (OTM) cash-secured put choices in month-to-month expiry durations.

In my final Barchart article on Dec. 19, I urged getting into an order to “Promote to Open” 1 put contract expiring Jan. 23, 2026, on the $88.00 strike worth. That train worth was 5% decrease than the buying and selling worth on the time ($92.44).

On the time, the premium acquired was $1.13 per put contract, offering a direct yield of 1.284% (i.e., $1.13/$88.00). As of Jan. 16, this put premium has fallen to $0.12 on the midpoint and is more likely to expire nugatory. So, this has been a profitable commerce.

Buyers could make related revenue going ahead. For instance, the Feb. 20, 2026, expiry interval reveals that the $92.50 train worth put contract has a midpoint premium of $1.63. This strike is 5.79% decrease than Friday’s shut.

Due to this fact, an investor shorting the $92.50 put contract expiring on February 20 earns a direct yield of 1.762% (i.e., $1.63/$92.50).

However, simply to be conservative, take a look at the $90.00 strike worth expiring Feb. 20. It has a midpoint premium of $1.05. That gives a short-seller of this put makes a 1-month yield of 1.167% (i.e., $1.05/$90.00).

The purpose is {that a} conservative investor (who shorts each contracts) can earn a comparatively secure common yield of just about 1.50% over the following month:

1.167% ($90 short-put play) + 1.762% = 1.4645%

On condition that each contracts have comparatively low delta ratios (i.e., between -0.18 and -0.26), there’s solely a couple of 22% likelihood that COP will fall to between $90 and $92.50.

However, the chance is that COP falls under $90.00 on or earlier than Feb. 20. That would doubtlessly lead to an unrealized capital loss. However at the very least the investor has acquired revenue that lowers the breakeven level.

The underside line is that COP nonetheless seems to be undervalued. One solution to play that is to promote quick out-of-the-money (OTM) places in 1 month expiry durations.

On the date of publication, Mark R. Hake, CFA didn’t have (both straight or not directly) positions in any of the securities talked about on this article. All data and knowledge on this article is solely for informational functions. This text was initially printed on Barchart.com