Dividend, Share Price: Is there a connection?
- Thread starter Lucstar
- Start date
-
- Tags
- dividends share price
Re: Dividend, Share Price. Is there a connection?
Yes, generally speaking there is a connection.
Usually a share price will fall the day it goes ex-divedend simply because people are taking a profit. The fall is not usually that great and often reflects the value of the divedend. The share price will also often rise a little leading up to the stock going ex-divedend.
Yes, generally speaking there is a connection.
Usually a share price will fall the day it goes ex-divedend simply because people are taking a profit. The fall is not usually that great and often reflects the value of the divedend. The share price will also often rise a little leading up to the stock going ex-divedend.
- Joined
- 17 June 2004
- Posts
- 668
- Reactions
- 2
Re: Dividend, Share Price. Is there a connection?
Clowboy is right by saying that there is a connection and that there is a drop in price once the stock goes ex dividend. But the reason is not because of people taking profit. It is because otherwise you would get a free lunch and that just never happens (Or if it does, usually the lunch turns out to be pretty bad).
In short:
If company A is trading at $10 and announces a dividend of $1, the share price will drop by $1 on the first day it is trading ex-dividend. (Check the NAB thread to see my posting regarding exactly that issue.) The price seem to have dropped for no reason if you're not aware that the stock is trading ex-dividend. Why is it falling? To compensate for the dividend paid. If it wouldn't fall, then you would get a $1 for free and that goes back to the story about free lunch...
So for the time until after the pay date, the stock will be trading lower. The only hope is that the market is so strong and the stock so hot, that it will regain the drop BEFORE it is trading "normal" again. In that case, you would be able to get a $1 from your dividend and some minor gains due to an increased share price. This is called "Dividend Capture". It's a strategy whereby the investor buys the stock roughly two weeks before it goes ex-dividend and then sells it about two weeks after it has gone ex-dividend in order to collect the dividend and make a small profit on the trade. On the stock's ex-dividend date, its price will drop by the amount of the dividend. The theory is that the stock's price will work its way back up to the price it was at before the ex-dividend date. This allows the investor to sell slightly above the purchase price. Thus, the investor is able to collect the dividend and realize a small capital gain in about four weeks. Also referred to as a "dividend rollover plan."
Lots of ideas have been posted regarding a way to profit from a dividend payout but it just doesn't work.
Happy trading
Stefan
Clowboy is right by saying that there is a connection and that there is a drop in price once the stock goes ex dividend. But the reason is not because of people taking profit. It is because otherwise you would get a free lunch and that just never happens (Or if it does, usually the lunch turns out to be pretty bad).
In short:
If company A is trading at $10 and announces a dividend of $1, the share price will drop by $1 on the first day it is trading ex-dividend. (Check the NAB thread to see my posting regarding exactly that issue.) The price seem to have dropped for no reason if you're not aware that the stock is trading ex-dividend. Why is it falling? To compensate for the dividend paid. If it wouldn't fall, then you would get a $1 for free and that goes back to the story about free lunch...
So for the time until after the pay date, the stock will be trading lower. The only hope is that the market is so strong and the stock so hot, that it will regain the drop BEFORE it is trading "normal" again. In that case, you would be able to get a $1 from your dividend and some minor gains due to an increased share price. This is called "Dividend Capture". It's a strategy whereby the investor buys the stock roughly two weeks before it goes ex-dividend and then sells it about two weeks after it has gone ex-dividend in order to collect the dividend and make a small profit on the trade. On the stock's ex-dividend date, its price will drop by the amount of the dividend. The theory is that the stock's price will work its way back up to the price it was at before the ex-dividend date. This allows the investor to sell slightly above the purchase price. Thus, the investor is able to collect the dividend and realize a small capital gain in about four weeks. Also referred to as a "dividend rollover plan."
Lots of ideas have been posted regarding a way to profit from a dividend payout but it just doesn't work.
Happy trading
Stefan
Re: Dividend, Share Price. Is there a connection?
Here is an article in todays newspaper
http://www.theaustralian.news.com.au/common/story_page/0,5744,11438484%5E643,00.html
I have just found this forum yesterday & recognise some of the names, & if anyone has seen my posts before on other forums you will know that I use the Dividend Trading Strategy for my prime source of income. I also started a website a few months ago to demonstrate how I do it, although the trading diary/margin trading on the website is based on eod data, but personally I trade intraday to try & extract a few extra dollars.....not everyones cup of tea, but this is my own strategy that I feel comfortable with & have now been making a living from it for a number of years.
If there is anyone interested in this type of trading, I am only to willing to reply.
http://www.exdividendwatchlist.com.au
rozella
Here is an article in todays newspaper
http://www.theaustralian.news.com.au/common/story_page/0,5744,11438484%5E643,00.html
I have just found this forum yesterday & recognise some of the names, & if anyone has seen my posts before on other forums you will know that I use the Dividend Trading Strategy for my prime source of income. I also started a website a few months ago to demonstrate how I do it, although the trading diary/margin trading on the website is based on eod data, but personally I trade intraday to try & extract a few extra dollars.....not everyones cup of tea, but this is my own strategy that I feel comfortable with & have now been making a living from it for a number of years.
If there is anyone interested in this type of trading, I am only to willing to reply.
http://www.exdividendwatchlist.com.au
rozella
Re: Dividend, Share Price. Is there a connection?
As a followup on the above newspaper article:
http://www.theaustralian.news.com.au/common/story_page/0,5744,11438484^643,00.html
Someone has emailed me the strategy on the ASX site as follows:
http://www.asx.com.au/markets/l4/WarrantStrategyofWeek_AM4.shtm
As a result I decided to see how this example of QAN compares with margin trading. QAN has a LVR of 70% with most marginlenders
Initial capital $10000
Buy 9891 shares @ $3.37.......................$33332.67
Sell 9891 shares @ $3.41.......................$33728.31
Profit.....................................................$ 395.64
Dividend 9891 x 0.09...............................$ 890.19
$ 1285.83
Less broker 2 x $33.................................$ (66.00)
Less 49 day holding charges
@ 8.15% p.a. on $23332.67.....................$ (255.28)
Total Return.............................................$ 964.55
Percentage Return on Investment....................9.64%
not annualised
* franking credits are not included
*** This is 61% more than the warrant strategy***
Let me know if anyone finds a flaw in my calculations.
Cheers,
rozella
As a followup on the above newspaper article:
http://www.theaustralian.news.com.au/common/story_page/0,5744,11438484^643,00.html
Someone has emailed me the strategy on the ASX site as follows:
http://www.asx.com.au/markets/l4/WarrantStrategyofWeek_AM4.shtm
As a result I decided to see how this example of QAN compares with margin trading. QAN has a LVR of 70% with most marginlenders
Initial capital $10000
Buy 9891 shares @ $3.37.......................$33332.67
Sell 9891 shares @ $3.41.......................$33728.31
Profit.....................................................$ 395.64
Dividend 9891 x 0.09...............................$ 890.19
$ 1285.83
Less broker 2 x $33.................................$ (66.00)
Less 49 day holding charges
@ 8.15% p.a. on $23332.67.....................$ (255.28)
Total Return.............................................$ 964.55
Percentage Return on Investment....................9.64%
not annualised
* franking credits are not included
*** This is 61% more than the warrant strategy***
Let me know if anyone finds a flaw in my calculations.
Cheers,
rozella
- Joined
- 17 June 2004
- Posts
- 668
- Reactions
- 2
Re: Dividend, Share Price. Is there a connection?
Provided that the share price will rise, which in current market conditions is a likely event, then you'll be the winner. I'm just a bit concerned as you do base your investment heavily on margin lending so if it turns against you, the loss will be accordingly. Comes down to the importance of stop loss and close monitoring and you seem to have that all in place. After all in a bull market almost anything works, especially stuff based on margin lending.
Would be interesting to hear more about it from you as you seem to do it on a regular basis.
Happy trading
Stefan
Provided that the share price will rise, which in current market conditions is a likely event, then you'll be the winner. I'm just a bit concerned as you do base your investment heavily on margin lending so if it turns against you, the loss will be accordingly. Comes down to the importance of stop loss and close monitoring and you seem to have that all in place. After all in a bull market almost anything works, especially stuff based on margin lending.
Would be interesting to hear more about it from you as you seem to do it on a regular basis.
Happy trading
Stefan
Re: Dividend, Share Price. Is there a connection?
Yes, you can "almost" use a dart board at present stefan, but I have been using this strategy for the last 4/5 years. As in any job, the more experience you gain the more you learn about handling situations, such as Sept 12th.
If there is some interest in this thread, I will post my buys & sells as they happen upfront (not after the event). As some of the posters here are aware, I do this on other forums as well if they are active & there is some response. My trading has been a little quite for the last week, as there are not many new deals for this strategy that fit my criteria atm & still have 13 open trades, but property trusts are just around the corner & have already completed trades recently on SGP, MCW, GAN, & CPA on the lead up to exdiv close to Christmas.....will be re-entering very shortly.
Cheers,
rozella
Yes, you can "almost" use a dart board at present stefan, but I have been using this strategy for the last 4/5 years. As in any job, the more experience you gain the more you learn about handling situations, such as Sept 12th.
If there is some interest in this thread, I will post my buys & sells as they happen upfront (not after the event). As some of the posters here are aware, I do this on other forums as well if they are active & there is some response. My trading has been a little quite for the last week, as there are not many new deals for this strategy that fit my criteria atm & still have 13 open trades, but property trusts are just around the corner & have already completed trades recently on SGP, MCW, GAN, & CPA on the lead up to exdiv close to Christmas.....will be re-entering very shortly.
Cheers,
rozella
- Joined
- 17 June 2004
- Posts
- 668
- Reactions
- 2
Re: Dividend, Share Price. Is there a connection?
Happy trading
Stefan
It would be interesting to know what sort of criteria you apply for this strategy. I for one would be keen to follow a few of your trades here to get an idea where you're coming from.
Happy trading
Stefan
- Joined
- 3 August 2004
- Posts
- 199
- Reactions
- 1
Re: Dividend, Share Price. Is there a connection?
Hi rozella,
I've been reading your threads with interest on another forum, I'd certainly be interested in seeing some more info about your strategy posted here.
regards,
Rod.
Hi rozella,
I've been reading your threads with interest on another forum, I'd certainly be interested in seeing some more info about your strategy posted here.
regards,
Rod.
Re: Dividend, Share Price. Is there a connection?
Thanks stefan & RodC,
AWB just reported this morning, I entered this on 10th November @ 472.0 (section 1 of my strategy) with a margin of 70%. Investment 141.6/share.
Dividend has just been declared @ 11.0 fully franked (same as last year). I usually enter section 2 a day after the announcement giving the market time to digest.
I trade intraday & that is what I will post here, but on my website it is eod trading all entry/exit are last price of the day subject to available volume. I am saying this because I usually am asked why there is a difference between my forum postings & website postings.
The following pages outline the strategy & trades on the website since 1st July 2004. All trades are on margin, & the marginlending page shows the growth of the portfolio position without including franking credits & dividends earned that are not paid, although they are listed but not added in.
Trading Diary
Margin Trading Position
Market has started,
rozella
Thanks stefan & RodC,
AWB just reported this morning, I entered this on 10th November @ 472.0 (section 1 of my strategy) with a margin of 70%. Investment 141.6/share.
Dividend has just been declared @ 11.0 fully franked (same as last year). I usually enter section 2 a day after the announcement giving the market time to digest.
I trade intraday & that is what I will post here, but on my website it is eod trading all entry/exit are last price of the day subject to available volume. I am saying this because I usually am asked why there is a difference between my forum postings & website postings.
The following pages outline the strategy & trades on the website since 1st July 2004. All trades are on margin, & the marginlending page shows the growth of the portfolio position without including franking credits & dividends earned that are not paid, although they are listed but not added in.
Trading Diary
Margin Trading Position
Market has started,
rozella
Re: Dividend, Share Price. Is there a connection?
Sold LNN today @ 794.0. Bought 5th November @ 777.0 with a 70% margin.
Investment 233.1/share.
Gross profit 17.0/share = 7.29% return on investment. 19 day trade.
Exdiv 6th December. Div 15.0/share fully franked
May re-enter, see what happens.
Sold 2 separate parcels of SGB today @ 2456.0 Bought 15th November in 2 separate parcels @ 2410.0 each with a margin of 75%.
Investment 602.5/share
Gross profit 46.0/share = 7.63% return on investment. 9 day trade.
Exdiv 29th November. Div 62.0/share fully franked
I will probably re-enter by Friday close to gain the dividend on this one. This is the 5th completed trade on SGB since 19th October.
rozella
Sold LNN today @ 794.0. Bought 5th November @ 777.0 with a 70% margin.
Investment 233.1/share.
Gross profit 17.0/share = 7.29% return on investment. 19 day trade.
Exdiv 6th December. Div 15.0/share fully franked
May re-enter, see what happens.
Sold 2 separate parcels of SGB today @ 2456.0 Bought 15th November in 2 separate parcels @ 2410.0 each with a margin of 75%.
Investment 602.5/share
Gross profit 46.0/share = 7.63% return on investment. 9 day trade.
Exdiv 29th November. Div 62.0/share fully franked
I will probably re-enter by Friday close to gain the dividend on this one. This is the 5th completed trade on SGB since 19th October.
rozella
Re: Dividend, Share Price. Is there a connection?
Re-entered LNN today @ 779.0 with a 70% margin. Investment 233.7/share
Exdiv 6th December. Div 15.0/share fully franked
Still waiting to re-enter SGB, last day tomorrow before exdiv day on Monday.
rozella
Re-entered LNN today @ 779.0 with a 70% margin. Investment 233.7/share
Exdiv 6th December. Div 15.0/share fully franked
Still waiting to re-enter SGB, last day tomorrow before exdiv day on Monday.
rozella
Re: Dividend, Share Price. Is there a connection?
Misjudged SGB selling on Wednesday, but since today is the last chance to be eligible for the dividend, I re-entered at almost the highest price today in two parcels @ 2480.0 with a margin of 75%. Investment 620.0/share.
Exdiv Monday 29th November. Div 62.0 fully franked.
rozella
Misjudged SGB selling on Wednesday, but since today is the last chance to be eligible for the dividend, I re-entered at almost the highest price today in two parcels @ 2480.0 with a margin of 75%. Investment 620.0/share.
Exdiv Monday 29th November. Div 62.0 fully franked.
rozella
Re: Dividend, Share Price. Is there a connection?
Sold LNN @ 805.0 this morning. Bought 25th November @ 779.0 with a 70% margin. Investment 233.7/share
Gross profit 26.0/share = 11.12% return on investment. 4 day trade.
Exdiv 6th December. Div 15.0/share fully franked
AWB & SGB went exdiv today....atm both are approx as expected......AWB is down the full div + fc.
rozella
Sold LNN @ 805.0 this morning. Bought 25th November @ 779.0 with a 70% margin. Investment 233.7/share
Gross profit 26.0/share = 11.12% return on investment. 4 day trade.
Exdiv 6th December. Div 15.0/share fully franked
AWB & SGB went exdiv today....atm both are approx as expected......AWB is down the full div + fc.
rozella
Re: Dividend, Share Price. Is there a connection?
I missed your post earlier Stefan,
Dividend + Franking Credit as a percentage of the investment must be more than 10% to be put on my watchlist. Then depending how many prospects are available & the cash available, the order of priority of stocks entered are as follows:
Good outlook for the following year
Increased profit from previous year
Increased dividend from previous year
Marginlending LVR no less than 60%
Stock in uptrend
So if all 5 points are met, then there is a good probability of profits in the trade as well as the dividend. When there is less stocks to choose from, I just have to enter the the stocks that meet the most criteria. It is all based on "the lure of the dividend making the price rise"
The Dividend Trading Strategy can be divided into 4 sections.
1. From now until profit announcement date (gamble section)
2. From profit announcement date until exdividend date
3. The dividend and franking credit amount.
4. After the fall on exdividend date until the stock rises to the price you want.
Sometimes I pyramid on each stage, other times just individual sections.
G'day suzanne, it is really a very simple strategy, you just have understand that you will be wrong some of the time, so don't think you know more than the market.....use you stoploss & move on to the next. Most believe they can't be wrong because they have done all the research & finish up losing or having their cash in limbo waiting because they believe in a stock. The best indicator is the price, & the best time factor is now.
rozella
stefan said:
I missed your post earlier Stefan,
Dividend + Franking Credit as a percentage of the investment must be more than 10% to be put on my watchlist. Then depending how many prospects are available & the cash available, the order of priority of stocks entered are as follows:
Good outlook for the following year
Increased profit from previous year
Increased dividend from previous year
Marginlending LVR no less than 60%
Stock in uptrend
So if all 5 points are met, then there is a good probability of profits in the trade as well as the dividend. When there is less stocks to choose from, I just have to enter the the stocks that meet the most criteria. It is all based on "the lure of the dividend making the price rise"
The Dividend Trading Strategy can be divided into 4 sections.
1. From now until profit announcement date (gamble section)
2. From profit announcement date until exdividend date
3. The dividend and franking credit amount.
4. After the fall on exdividend date until the stock rises to the price you want.
Sometimes I pyramid on each stage, other times just individual sections.
G'day suzanne, it is really a very simple strategy, you just have understand that you will be wrong some of the time, so don't think you know more than the market.....use you stoploss & move on to the next. Most believe they can't be wrong because they have done all the research & finish up losing or having their cash in limbo waiting because they believe in a stock. The best indicator is the price, & the best time factor is now.
rozella
Re: Dividend, Share Price. Is there a connection?
rozella
how do you handle the 45 day rule?
also re SGB
I have noticed a severe negative bias once ex-div. it seems SGB div strippers are the biggest gluttons for punishment on the ASX. Every div SGB pays, the stock will run 3-4x the div amount going into the div, peak a day or two before ex, then tank indefinately afterwards. The peaks always seem to be the cum-div period. A quick glance at SGB chart will confirm all of this.
your thoughts?
also, you may find you get better results trading via self funded instalment warrants for the big blues.
rozella
how do you handle the 45 day rule?
also re SGB
I have noticed a severe negative bias once ex-div. it seems SGB div strippers are the biggest gluttons for punishment on the ASX. Every div SGB pays, the stock will run 3-4x the div amount going into the div, peak a day or two before ex, then tank indefinately afterwards. The peaks always seem to be the cum-div period. A quick glance at SGB chart will confirm all of this.
your thoughts?
also, you may find you get better results trading via self funded instalment warrants for the big blues.
Re: Dividend, Share Price. Is there a connection?
You must be psychic crashy, I was going to mention the 45 day rule on my last post, but I hate reading long posts myself so I don't push them on to others.
Short answer is if you go past the $5k exemption per tax entity you lose them. But if you have joint ownership then you have 2 x $5k for example, a super fund gives you an extra $5k. You can easily achieve $18k dividends per tax entity trading property trusts & partially franked stocks, then you have the other 3 sections of the strategy to really work on.
To each his own I guess, I just like the flexibility of marginlending & feel very comfortable with it
I just looked through my trading records & the last 4 divs on SGB were small positive trades as well as recieving the dividend. The worst result was last November when I sold at a small trading profit plus the dividend, but held for 54 days, the other times were between 7 & 22 days
Cheers,
rozella
You must be psychic crashy, I was going to mention the 45 day rule on my last post, but I hate reading long posts myself so I don't push them on to others.
Short answer is if you go past the $5k exemption per tax entity you lose them. But if you have joint ownership then you have 2 x $5k for example, a super fund gives you an extra $5k. You can easily achieve $18k dividends per tax entity trading property trusts & partially franked stocks, then you have the other 3 sections of the strategy to really work on.
To each his own I guess, I just like the flexibility of marginlending & feel very comfortable with it
I just looked through my trading records & the last 4 divs on SGB were small positive trades as well as recieving the dividend. The worst result was last November when I sold at a small trading profit plus the dividend, but held for 54 days, the other times were between 7 & 22 days
Cheers,
rozella
Similar threads
