Dividend, Share Price: Is there a connection?

[rozella]

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

G'day Milk Man,

My opinion (not advice) if you are using CFD's, is to sell prior to exdiv, maybe 2 days before, as a lot of international traders dump the day before exdiv, as they are not entitled to the franking credits.

Big day today for dividend trading, as 66 stocks are quoted exdiv that I have on my list. It is a very ordinary day, so on the average, they have dropped the full dividend/distribution.....no loss, no gain. I only hold 6 of them, the worst being IPG, the rest are as expected.

rozella

 

[mit]

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

Rozella,

I thought I noticed the same thing, but when I tried to backtest a simple system (Entry 25 days before div date with a bullish filter). I got the following results for the average annual return from 1998.

Days before ex-div date % Annual return
1 23%
2 21%
3 19%

However the return by selling on the open of the ex-div day is 25%. This is not including the Franking credits.

MIT

 

[rozella]

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

G'day mit

It is very difficult to find a common entry point.....last year would be different, & next year will be different again.

The market was negative today.....the outcome would be completly different if say we had yesterdays +43.2 points.

 

[Milk Man]

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

Rozella,

I thought I noticed the same thing, but when I tried to backtest a simple system (Entry 25 days before div date with a bullish filter). I got the following results for the average annual return from 1998.

Days before ex-div date % Annual return
1 23%
2 21%
3 19%

However the return by selling on the open of the ex-div day is 25%. This is not including the Franking credits.

MIT

Hey dude,
A few questions.
-what leverage involved (any)?
-whats the bullish filter?
-why is the sky blue?

 

[mit]

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

Hey dude,
A few questions.
-what leverage involved (any)?
-whats the bullish filter?
-why is the sky blue?

No leverage. 6.5% maximum drawdown so it is good to have leveraged. Filter is basically a short ema higher than a long ema. I wasn't really demonstrating a system just showing the effect of selling on different days.

regards
Michael

 

[Milk Man]

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

Thanks MIT, sounds like its a goer.

Rozella, how hard would it be to accurately pick the ex-div day 25 days out? I noticed on your list theres some predicted div dates. How accurate do you think using last years date would be?

 

[rozella]

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

Some of the forecasted dates the companies have actually published, but they always have a disclaimer & are subject to change. We really can't be sure until they announce, but they should be good to within a few days, depending on weekends etc.

 

[money tree]

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

My opinion (not advice) if you are using CFD's, is to sell prior to exdiv, maybe 2 days before, as a lot of international traders dump the day before exdiv, as they are not entitled to the franking credits.

There is no data to support this view. There is in fact a positive bias on the cum-div day.

If you are using CFDs to div strip you have rocks in your head. The key part of the div strip is the 'stripping' of the franking credits away from the cash div. There are no FCs with a CFD so there is nothing to strip.

I wonder Rozella what your equity chart would look like if you simply invested on margin during a bull run......I suspect the majority of profit is from being leveraged into a massively rising market, and NOT from some div phenomenon.

 

[rozella]

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

moneytree,

There is no data to support this view. There is in fact a positive bias on the cum-div day.

As I said, this is my opinion, & my observation.

If you are using CFDs to div strip you have rocks in your head. The key part of the div strip is the 'stripping' of the franking credits away from the cash div. There are no FCs with a CFD so there is nothing to strip.

I think we all know that.

I wonder Rozella what your equity chart would look like if you simply invested on margin during a bull run......I suspect the majority of profit is from being leveraged into a massively rising market, and NOT from some div phenomenon.

It would be a smoother rise. The dividend income would be similar, but the trading profits would be greater.

 

[mit]

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

Some of the forecasted dates the companies have actually published, but they always have a disclaimer & are subject to change. We really can't be sure until they announce, but they should be good to within a few days, depending on weekends etc.

I have been doing this since March and 25 days is the optimal peak but the curve is reasonably flat at this point. So being out a day or two either way doesn't make much difference.

I buy 35 days before so I can pick up the franking credits and that's where I have to be careful to check before ex-div day to make sure I have held long enough or I sell before the ex-div date (Make one mistake and you lose all of the franking credits arrgh).

MoneyTree,

Check Rozella's posts here and at ReefCap. He has made a decent return every year even during the tech crash and sept/11.

MIT

 

[rozella]

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

I believe that "The lure of the dividend, gives a stock a reason to rise" so whatever strategy a trader uses to capture this, is up to them. I do not wish to promote any particular method of doing this, each trader needs to develop their own trading plan, just as mit is doing.

 

[RichKid]

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.

Crashy,
Thanks very much for clearing that up, I hadn't seen that point mentioned til I searched for it today, I assumed it was always 45 days after- which makes me an amateur. Doesn't really affect me atm as I wont have $5k of divs since I'm mainly a trader. Nice clear explanation, I'll have to read the ATO stuff again now.

 

[bullmarket]

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

Hi everyone

My understanding of the 45 day rule is that it only applies if you have held the shares for 45 days (not including buy and sell dates) 'around' the ex-div date and if your total annual franking credits (not dividends) is more than $5,000.00. You also must have held the shares 'at risk' during those 45 days. I'm not sure exactly what that means, but basically you can't have also bought things like options or derivatives to hedge against up or down movements in the share price during the 45 days.

By 'around' I mean that if you bought the shares 10 days before the ex-div date then you will have to hold them for at least 35 days after the ex-div date to be allowed to claim the franking credits, although you obviously still collect the div regardless of when you sell on or after ex-div date.

But I am not a tax adviser so please take the above as a guide only and confirm with your tax adviser or the ATO if any of the above applies to you and your circumstances before acting.

cheers

bullmarket

 

[rozella]

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

Yes, what you say is correct bullmarket. I am not a financial advisor either, but have been doing this for a reasonable length of time, but this is not advice, & you should have an independant expert interpretation.

However, each individual tax entity can receive $11667 in dividends if they are all fully franked, ($5000) & be exempt by trading under 45 days + buy & sell days, but if you mix in zero franked stocks such as the LPT's, you should be able to easily achieve $18000 in dividends. So now if you & your spouse or partner both have tax file nos, & you buy jointly, then you could achieve $36000 in dividends between you & trade under 45 days. But go $1 over each & you lose the exemption, & then only those trades that are over the 45days + buy & sell days can be claimed for franking credits.

You need to be very careful that hanging out for the 45 day +, does not influence your trading either. i.e losing 50 cents because the stock drops, in order to receive 25 cents franking is ridiculas....but this can easily happen.

The problem comes when you are close to the 45+days, as with one of my trades atm. SGB I bought for 2922.0 on 18th November ( 41 days today...so I can sell next Tues & keep the FC which is another 30.0 cents/share) It is up 4.0 atm @ 2984.0, plus I will receive 70.0 dividend either way, so really I now have a stoploss of what?.....15.0 cents

 

[robots]

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

Bought TCL today @ 680.0 with a margin of 70%
Investment 204.0/share
Exdistribution 23rd December, distribution 24.5/unit, zero franked.

hello rozella,

with a margin loan, you provide cash or equities to "secure" the loan.

so, if you already owned $20,000.0 of CBA shares you could borrow say $15,000.0 against this holding (75% lending ratio)

so the margin loan lender says "here rozella , go and buy whatever you want on the market with that $15,000.00"

and you have bought TCL at 680.00/share and I assume paying the full price for the share, ie. if bought 1000 shares would cost $6,800.0

in your post you mention: bought TCL with 70% margin, therefore investment 204.0/share

did you buy TCL for 680.0/share?

thankyou
robots

 

[Stan 101]

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

Hi Robot, I think I can answer this one for you. Rozella might like to expand.

with a 70% margin, Rozella only outlayed 30% of his own capital to purchase the TCL shares and 70% came from the margin loan.

in effect, Rozella only had to come up with $2.04 per share and the margin loan picked up the remainder of the $6.80.

That's the essence of leverage or gearing, allows you to purchase more than you have the capital for which gives you the option to lose more, or gain more.


All the best,

 

[rozella]

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

G'day robots,

so, if you already owned $20,000.0 of CBA shares you could borrow say $15,000.0 against this holding (75% lending ratio)

If you own CBA i.e. $20,000, this is your investment, so you can "mortgage" for want of a word, with your CBA as security. The lender will allow you to use 75% of the last price or ask price, whichever is the lower, for whatever you want it for......you can take it out if you want to.

If you choose to leave it in, you can now use that $15000 as "deposit" to purchase more stocks.
e.g.
Buy $20000 of SGB....LVR is 75% investment $5000
Buy $20000 of ANZ....LVR is 75% investment $5000
Buy $20000 of WDC...LVR is 75% investment $5000

So now you have $80,000 of shares maximum including CBA, & depending on the marginlender, they then give you a buffer of 5% or 10%, we will say 5%, which means that although you have used all your loan to the maximum, they will allow a 5% of $80,000 drop before they give you a margin call i.e. $4000

and you have bought TCL at 680.00/share and I assume paying the full price for the share, ie. if bought 1000 shares would cost $6,800.0

Although we may buy 1000 TCL @ 680.0 = $6800 we only need to invest 30% because the marginlender puts up the other 70%, so our investment is $2040 & we borrow $4760 with TCL as security. It is just like buying real estate.

Is that what you were asking ?

 

[robots]

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

G'day robots,
Although we may buy 1000 TCL @ 680.0 = $6800 we only need to invest 30% because the marginlender puts up the other 70%, so our investment is $2040 & we borrow $4760 with TCL as security. It is just like buying real estate.

"the margin lender puts up the other 70%"

how does this occur?

how do you put up TCL as security? you have just purchased this stock with a margin loan (ie. the $15,000.00 you were loaned)

look forward to responses
thanks
robots

 

[tech/a]

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

TCL has a value and as the margin is 30% then the full 100% value is pretty good security.
Like putting 30% deposit in cash on a house,the bank takes a mortgage out on the house--the whole house not 70% of it.

 

[robots]

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

hello,

getting back to original example, my current holding of $20,000.0 CBA allowed be to borrow $15,000.00 (margin loan)

I then purchsed 1000 x TCL for $6800.0, paid out of my margin loan account which had a starting balance of $15,000.0

TCL may rise or fall but you have still outlayed $6,800.0 for TCL

the TCL can then be used as security to obtain more funds ie. 70% lending ratio and further purchases can be made

is this what happens?

thanks
robots