In our Covered Call Group, members are discussing the selling of contracts of options on the stock ZIM. Let’s look at the issue as far as I can tell.
ZIM Integrated Shipping Services Ltd (NYSE: ZIM currently trading at $48.90) is an Israeli freight services provider with global routes, a long history (running back to 1945), and has made its owners rich.
Therein lies the conundrum: On August 26th, any owners of the stock will be entitled to another massive dividend payment: in fiscal ’22, the stock will pay out nearly $25 ($17 in March +$2.85 in May +$4.75 in September) in dividend payments.
Many members of the group are looking at the juicy dividends and wondering how to take advantage of them. I’m more skeptical! This trade makes no sense to me. Unless I already had stock. Having unintentionally played earnings before, I know how volatile stocks can be.
That to me suggests not strength but business weakness. Pay out divvies because they have nowhere else to invest for a stock that has only traded for 2 years? Is this a tax play by the owners to avoid Israeli cap gains of 30%?
Two articles underline why this is a trade to be avoided in the short term: one is the history of the company. The other is on Seeking Alpha and raises the kind of ZIM Integrated: Is The Near-40% Dividend Yield A Trap? (NYSE:ZIM) | Seeking Alpha! What say you?