Dividend, Share Price: Is there a connection?

[RichKid]

Re: Dividend, Share Price. Is there a connection?

Very interesting thread, keep it going Rozella, I'm a bit of a novice and generally just trade basic support resistance short term but this dividend strategy looks good, must get my head around it. I don't use margin so I'll have to see if it works without it. Maybe through CFD's...(although I haven't used those yet). Glad to have you on the forums!

 

[rozella]

Re: Dividend, Share Price. Is there a connection?

Bought BSO today on the royalty announcement @ 253.0 with a margin of 50%.
Investment 126.5/share.
Sold today @ 263.0/share.
Gross profit 10.0/share = 7.9% return on investment. 1 day trade.
Exdistribution 23rd Dec 50.782/share. huge yield, been there, done that.....takes too long to come back to the buy price. There may be a few trades in it before 23rd Dec.

Bought TEN today @ 424.0 with a 70% margin. Investment 127.2/share.
Exdiv expected 23rd Dec. Last year div was 9.5/share + a special div of 5.5/share = 15.0 fully franked. Can't count on the special div until announced.

rozella

 

[rozella]

Re: Dividend, Share Price. Is there a connection?

A great day on the market today & certainly made up for yesterday.

Finally sold MGW today @ an average of 530.35. Bought 25th October @ 530.0 with a 65% margin. Investment 185.5/share. Div 13.75/share fully franked 5.89/share.
Gross profit 19.99/share = 10.77% return on investment. 38 day trade.

rozella

 

[crashy]

Re: Dividend, Share Price. Is there a connection?

hi rozella

I was asking how YOU handle the 45 day rule, not how others should handle it. ps I have a DFA.

from what I know of your strategy, you buy FPO stock using leverage, hold for a short period, get the div and hopefully sell the stock at a profit.

Its a good strategy, and although you werent the first to come up with it, you do seem to have turned it into an art form.

But I believe it could be done better.

There are several issues with your strategy:

1. Time delay between ex-div dates and clearing of div cheque.
2. Major time delay between ex-div dates and tax refund time (to make use of the franking credits)
3. Assessable income increases with each div received
4. Unlimited leveraged risk
5. capital losses from ex-div falls must be offset against capital gains elsewhere, cannot be offset against div income

many of these issues can be resolved simply by switching to self funding instalment warrants.

Point 1. Since no div cheque is sent, there is no delay, and no ex-div fall (assuming fpo falls nett div amount)

Point 3. Assessable income decreases with each div "paid", since no div cheque is received, but franking credits still apply. Read the example on my site for more info.

Point 4. Risk is limited to the initial amount paid for the warrant. Trading on margin, if there was another 911, you may find a margin call will wipe out your account in a millisecond. You lose all of your equity plus more if it is a bad drop, and will have no way to recover.
With warrants this cannot happen. Warrants provide similar or better leverage than margin lending (removing the chance of a margin call), and can provide prepaid interest tax benefits.

Point 5. capital losses from ex-div falls dont exist. If the stock recovers over X days as you predict, the result is a simple capital gain. If you have a series of trades where the capital loss equals the nett div, you will find yourself with a capital loss you cant offset, and a large increase to your assessable income. Not good.

So in summary, my mods to your system:

1. decreases risk
2. improves after tax performance
3. far simpler and easier
4. offers better leverage (which will improve annual performance further)
5. you dont have to balance capital gains
6. lowers your marginal tax bracket
7. allows quicker reinvestment of funds (which will improve annual performance further)
8. you will probably save a heap on accountant fees since its a lot simpler

Just my 2c

 

[crashy]

Re: Dividend, Share Price. Is there a connection?

Another point I would make is regarding your profit claims. You include div payments on quick trades even though you will likely get the cheque 3-4 weeks later, making the effective trade period much longer. Franking credits may not be used for up to a year later. I just feel it is slightly misleading the way you report profits thats all.

 

[rozella]

Re: Dividend, Share Price. Is there a connection?

G'day crashy,

Many traders/investors use the dividend strategy & have been long before I took it on board. We can thank Mr Keating for the changes with franking credits.

As I said before I am comfortable with this strategy & have made a reasonable living from it for the past 5 years which took in 911..... the next month Oct 01 was & still is the best trading month I have had, well & truly offsetting losses in the Sept.

There are many ways to make a living from the sharemarket & the Dividend Trading Strategy is my way. As most would know on this forum, I have subscribers to my exdividendwatchlist & it is up to the individual to deal with those stocks as they want with any strategy. I provide the list of exdividend dates. I have browsed your website & it has some good ideas, however I personally prefer marginlending.

There are several issues with your strategy:

"1. Time delay between ex-div dates and clearing of div cheque.
2. Major time delay between ex-div dates and tax refund time (to make use of the franking credits)
3. Assessable income increases with each div received
4. Unlimited leveraged risk
5. capital losses from ex-div falls must be offset against capital gains
elsewhere, cannot be offset against div income"

1.& 2.I have no problems with this although it would be nice to receive them earlier.
3. Agree
4. Disagree, a marginlender will contact you to take action if you fall through your buffer. e.g. if you owned AMP or TLS with a marginlender you would have been forced to use your stoploss. Some traders find it difficult to pull the trigger in a losing situation, so if you won't do it, big brother insists.
5. This will depend on whether you have trader status or investor status.

"Another point I would make is regarding your profit claims. You include div payments on quick trades even though you will likely get the cheque 3-4 weeks later, making the effective trade period much longer. Franking credits may not be used for up to a year later. I just feel it is slightly misleading the way you report profits thats all."

This is my website margin trading page where dividends are not added until received, & franking credits are not included at all (but listed)

Margin Trading

Crashy, I think your ideas are good, but I am sure it would be better for you to demonstrate & post your trades on this thread for all to have a better understanding of your strategy. Live examples of your current trades so we can follow them.

rozella exdividendwatchlist

 

[crashy]

Re: Dividend, Share Price. Is there a connection?

I wont be adopting your strategy or my mod version of it just to prove a point.

I have "invented a better mousetrap" but sales are slow it seems.

If I get time I might show a hypothetical trade or two as they come up.

My "current trades" are likely to be daytrades on FX, about as distant and irrelevant as you can get.

 

[rozella]

Re: Dividend, Share Price. Is there a connection?

Sold TEN this morning @ 441.0. Bought @ 424.0 with a margin of 70% on 1st December.
Investment 127.2/share.
Gross profit 17.0/share = 13.36% return on investment. 7 day trade.
exdiv 23rd December for a div of 12.5/share fully franked 5.357/share.
I will enter again if it dips. last year's div was 9.5 div + 5.5 spec.div = 15.0

rozella

 

[ghotib]

Re: Dividend, Share Price. Is there a connection?

I'm following this with considerable interest. Thanks Rozella and Crashy.

Just wondering, is there normally a bit of a rise in share price immediately a stock comes out of its xdiv period, or is the next divvie too far ahead to have much effect?

Thanks

Ghoti

 

[rozella]

Re: Dividend, Share Price. Is there a connection?

Ghoti,

If the stock has a good outlook for the future, it usually continues to rise, it is just that blip cut out of it for the dividend that upsets the chart. It depends on the quality of the stock. The stock has given away part of its worth as a dividend, so it immediately is worth that much less. I always allow for a drop of dividend + franking credit. The next dividend does not really have much effect on the price until it gets much closer, unless there is an announcement with lots of promises.

rozella

 

[crashy]

Re: Dividend, Share Price. Is there a connection?

ghoti

due to the 45 day rule for franking credits, there is often buying occuring for 45 days before the div, and selling for 45 days afterward. Smart investors buy 45 (47) days before the div, and sell ex-div day. Amateurs buy on the cum-div day and sell 45 days later.
Of course this assumes the stock would otherwise be stable, which rarely happens. generally its best to buy ex-div when overall market sentiment is positive.

 

[ghotib]

Re: Dividend, Share Price. Is there a connection?

Thanks Crashy.

I'm looking to buy into TIM, which I've been investigating for quite a while - since about 60cents ago <grr> - with a view to long term hold. It barely blinked when it went XDIV. It dropped along with the rest of the market over the last couple of days, and I guess I'm wondering if it might drop a bit further even if the rest of the market picks up again this week. Would you still call market sentiment positive if we have another 2 days of falls - and if not why not?

Cheers,

Ghoti

 

[crashy]

Re: Dividend, Share Price. Is there a connection?

traders far wiser than me suggest that anything more than 3 days down is a change in trend. so tomorrow is make or break.

 

[rozella]

Re: Dividend, Share Price. Is there a connection?

Re-entered TEN today @ 435.0 with a margin of 70%. Investment 130.5/share.
exdiv 23rd December for a div of 12.5/share fully franked 5.357/share.

rozella

 

[still_in_school]

Re: Dividend, Share Price. Is there a connection?

Hi Rozella,

just 2 really quick questions, who do you use as your online broker, as your brokerage is really cheap.

but also, im a bit confused, but.. could you please give me an idea on your brokerage rate if possible.

say for:

$10k ?
$20k ?
$30k ?
$40k ?
$50k ?

Cheers,
sis

sorry, i just feel that im been really ripped off by my broker.

 

[rozella]

Re: Dividend, Share Price. Is there a connection?

still_in_school,

I use AOT (hopefully all will remain the same since Commsec has acquired them....I don't expect so in time)

All brokerage is $33 incl gst. note: you can also have 6 buy trades (or 6 sells) onthe same stock on the same day at different price levels for the single $33

AOT

rozella

 

[rozella]

Re: Dividend, Share Price. Is there a connection?

Just as a matter of interest, our website dividend strategy/marginlending using 'end of day data' has just passed the 50% return on investment under the first 6 months of this year.
Brokerage & approx interest has been deducted. Franking credits have been listed, but not included in any profits. All dividends have been credited to the account.

Margin Loan

Trading Diary

rozella

 

[still_in_school]

Re: Dividend, Share Price. Is there a connection?

Thanks Rozella,

im so surprised by how cheap the brokerage is... but also it allows you more profit margin, on all trades, due to the set brokerage rate, but also the rate my broker has been charging me....definetly i will be changing for sure.

Cut and Pasted from AOT Website.

Using AOT's Integral trading platform, you are able to trade for a flat fee of $33 (inc GST) for trades up to $1 million per confirmation.

http://aotonline.com.au/private/fees.php

Cheers & Many Thanks,
sis

 

[rozella]

Re: Dividend, Share Price. Is there a connection?

Thanks Rozella,

im so surprised by how cheap the brokerage is... but also it allows you more profit margin, on all trades, due to the set brokerage rate, but also the rate my broker has been charging me....definetly i will be changing for sure.

Cut and Pasted from AOT Website.

Using AOT's Integral trading platform, you are able to trade for a flat fee of $33 (inc GST) for trades up to $1 million per confirmation.

http://aotonline.com.au/private/fees.php

Cheers & Many Thanks,
sis

I forgot to mention, but you probably read it on the AOT site, there is a software/data fee per month, it is split into 2 parts, software $38.50 max, & data $38.5 max. If you have minimum of 8 trades per month (combination of buys & sells) one of the $38.50 is free, but if you have 16 or more trades there is no monthly fees at all.

That may make a difference to the average trade price, mine is generally free, that is why I forgot.

rozella

Cheers

 

[rozella]

Re: Dividend, Share Price. Is there a connection?

Sold some bank stocks today as they are going nowhere to finance the LPT's coming up.

Sold WBC today @ 1863.0. Bought @ 1879.0 on 2nd November with a margin of 75%.
Investment 469.75/share
Dividend 44.0/share fully franked 18.85/share
Gross profit 46.85/share = 9.97% return on investment

Sold NAB today @ 2790.0. Bought @ 2855.0 on 3rd November with a margin of 75%.
Investment 713.75/share
Dividend 83.0/share fully franked 35.57/share
Gross profit 53.57/share = 7.5% return on investment

Re-entered SGP today @ 589.0 with a margin of 70%.
Investment 176.7/share
exdistribution expected 23rd December.
Last years distrib. was 18.0/share franked to 18.89% 1.46/share

rozella