Dividend, Share Price: Is there a connection?

[brty]

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

Hi Badman,

I think you will notice that the put prices already have the dividend/drop in share price factored in. Hence they have more premium than calls in the nearest traded month. The further you go out in time, that premium reduces/inverts.

brty

 

[schrutzen]

the stock is like a waterbag that leaks

actually it does since most of the profits wont go back to the business for expansion or other investments dividends are a great way to attract investors who are looking for fixed income... if you want steady growth get stocks that doesnt pay out dividends and has a great balance sheet...

http://www.econtrader.com or http://www.investopedia.com and http://stocks.about.com should help newbies out there.

 

[Sir Osisofliver]

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

Hi Rozella,

Back in '02 I also used a dividend trading strategy that I built myself. I found that whilst the market was directionless it was a very valuable strategy. (near 45% p.a. return).

I read the first few interesting pages in this thread, and briefly looked at your website and a notice some significant differences between our approaches and would like to discuss them with you here in the thread. So as not to make this a monster of a post I'll just ask one question/ Make one comment at a time.

1) One of the things that I would always check with a target for the strategy would be the size of the individual dividend compared to the total dividend. Many companies pay a significantly higher final or interim dividend which can distort the level of return in favour of a dividend trading strategy. For example Wesfarmers pays a significantly higher final dividend of $1.35 compared to the latest interim dividend of 0.65 so whilst the overall yield on Wesfarmers (ignoring franking credits) is 6.40% (2.00/31.24) the final dividend is 67.5% of the total yield. I can hold the stock therefore for 47 days and take over 2/3rds of the yearly dividend.

Comments?

Sir O

 

[rozella]

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

G'day Sir Osisofliver,

I am happy to discuss dividend trading also preferring one item at a time.

1) One of the things that I would always check with a target for the strategy would be the size of the individual dividend compared to the total dividend. Many companies pay a significantly higher final or interim dividend which can distort the level of return in favour of a dividend trading strategy. For example Wesfarmers pays a significantly higher final dividend of $1.35 compared to the latest interim dividend of 0.65 so whilst the overall yield on Wesfarmers (ignoring franking credits) is 6.40% (2.00/31.24) the final dividend is 67.5% of the total yield. I can hold the stock therefore for 47 days and take over 2/3rds of the yearly dividend.

Quite true, however, the exdividendwatchlist covers this by selecting from the high yielding stocks for the reporting period at the time. The stocks & yield ratios are boxed on the list for stocks that show a yield (including marginlending) of 10% or over for the current dividend period & that have reasonable volume.

WES is a good example as at close on the 25th August(day before exdiv) it was 3255.0 & with a dividend of 135.0 fully franked using marginlending, it showed a gross return of 23.7% on investment, providing that it is also sold for 3255.0. It is down today atm at 3135.0

These boxed stocks are not recommendations, but just filter the list for a personal watchlist from which an order of priority can be selected.

I rarely hold a stock for more than 29 days average, so franking credits are rarely earned especially in this volatile market.

 

[Sir Osisofliver]

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

rozella

Thanks for the response.

I see this as being a major diffential between the two strategies. The focus of my strategy was the dividend income rather than the capital gain. The goal was to have a relatively small amount of capital gain, and use the franking credits to achieve a tax advantaged income stream. - This probably accounts for the major differences that I see between the two strategies. And hence my comments below...

2) Rotaions and portfolio approach - '02 wasn't exactly a picnic either in terms of direction or volatility. A basic tenet of investing is to use diversification to spread the risk. So given that my goal was the dividend income rather than the capital gains, I targeted 6 rotations during a yearly period. (60 days each) with each rotation having no more than 5 stocks. So finding 5 stocks that went exdiv within a week of each other. The reason for a 60 day rotation was that I was targeting stocks based on historical dividend information and would exit on ex-div day. (meaning I had to have held it for 47 days on the ex date 45 day holding rule not including the date of purchase or sale). By using several stocks in a single rotation I spread the risk of any single investment performing poorly in a rotation. Each rotation averaged only 8% - but cumulatively gave me a 45% return.

Question - I couldn't see any portfolio approach in what you've said. Would you consider the use of a portfolio approach to lower risk for anyone attempting a less risky approach?

Sir O

 

[rozella]

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

G'day Sir Osisofliver,

It does not matter to me whether I capture the actual dividend or an equal amount through price rise, as a trader, both are accounted to income.

I prefer to sell prior to exdiv if possible as I then have my profit plus my capital ready for the next deal.

I do not allow franking credits to control my trading.....when I believe my target is maximised I sell as this can be risky waiting to comply with the 45 day rule. The example of WES....franking credit was 57.86/share.....the risk of price drop is high while waiting to reach the holding rule

WES Last Ten Days
29-Aug-2008 3080
28-Aug-2008 3166
27-Aug-2008 3165
26-Aug-2008 3100 exdiv day
25-Aug-2008 3255
22-Aug-2008 3195
21-Aug-2008 3290
20-Aug-2008 3455
19-Aug-2008 3427
18-Aug-2008 3465

Just trying to understand the number of trades that you are doing per year from your post.....is it 30 maximum ? Is trading your prime occupation ?

Question - I couldn't see any portfolio approach in what you've said.

Thats correct. In a normal market I would have between 10 & 15 stocks at any one time in various sections of the dividend cycle all year, however in the present market it is a more cautious hit & run approach with only 1 to 3 stocks using no more that 10% of my trading capital.

Would you consider the use of a portfolio approach to lower risk for anyone attempting a less risky approach?

I don't attempt to influence anyone with a particular trading strategy as this is upto each individual trader to develop their own......we all have different levels of risk & trading expectations. I do have a basic EOD portfolio on my website, but that is just to show that there is some merit in trading cum-dividend stocks....the EOD is so prices can easily be tracked & verified.

I have been trading the dividend strategy as my prime source of income for a little over 10 years now & am comfortable with it. I still make plenty of wrong decisions & am doing my best to minimise them.

 

[r34ztune]

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

hi roz,
great thread, keep up the posting. 1 question, does this strategy replace your income, in other words, do you do this full-time? or have another job on the side?
keep up the good work

 

[rozella]

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

hi roz,
great thread, keep up the posting. 1 question, does this strategy replace your income, in other words, do you do this full-time? or have another job on the side?
keep up the good work

I've been trading full time for the past 12 years & have been trading cum-dividend stocks for the last 10 years. My only other job is that I like golf....just on my way now for 12 holes.....back before open. I also occupy some time producing the http://www.exdividendwatchlist.com.au

 

[Sir Osisofliver]

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

Hi Rozella, thanks for the response - How was the golf game?

I do not allow franking credits to control my trading.....when I believe my target is maximised I sell as this can be risky waiting to comply with the 45 day rule. The example of WES....franking credit was 57.86/share.....the risk of price drop is high while waiting to reach the holding rule

There was a number of rules that I had when evaluating a stock for it's potential in the strategy. Most of which were designed to reduce the risk of getting a dud and complying with the 45 day holding rule - EG portfolio approach towards transactions. I'll cover off against these rules that I had as we go forward, but as I said in my first response I didn't want to type a monster of a post

Just trying to understand the number of trades that you are doing per year from your post.....is it 30 maximum ? Is trading your prime occupation ?

As I said in my first post I'm reminiscing about a strategy I employed back during the last correction of the market. I little bit about me.....I'm an ex stockbroker. Currently trading is not my prime occupation - for a number of reasons.

Ok so as I said one of the things that I would do in my strategy (Given that I wanted/needed the franking credits), was to purchase the stock so that I was able to exit on the day it went ex-div. But how did I evaluate the stock to lower the risk? I had a list of rules that I would structly follow and here are the first of them.

1) History - As I said in my previous post - Its possible to have a company pay an unequal final or interum dividend. If the company has a trackable history of doing so they would get a point under my system. If the company has a ten year history of paying dividends consistently that would also get them a point.

2) Size of Individual dividend - The individual dividend needed to be larger than 5% ungrossed. Anything smaller than this and the costs of transaction could be detrimental to the exercise. The larger the dividend the better. One point for above 5% div.

3) Liquidity - If a target met the above three characteristics, I would generally look a little deeper (it wasn't that hard as remember I would be targeting those stocks in 60 day rotations and wanted stocks that would go ex-div within a week of each other). So I'd only be looking at about 20 stocks max. I would go look at course of sales data of the previous year when the stock had gone ex dividend and determine how liquid the stock was previously. If on the day of exdiv the stock had a liquidity of 50% or greater of a monthly average it would get a point. I would also check out the registry number and major holders (if any). If any of the stocks had a substantial long term shareholder holding that hadthe potential to reduce the liquidity that would lose them a point.

This post is turning into a monster I'll leave it there for now and come back later when I have some time.

Sir O,

 

[rozella]

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

Bought AMP today @ 700.0 with a margin of 75%
Investment 125.0/share
Exdiv 15th September
Dividend declared 22.0/share 85% franked 8.01/share
Special dividend declared 2.0/share 85% franked 0.73/share

 

[ceasar73]

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

Hi Rozella,

I really enjoy your posts. What are the common attributes of the companies in which you make a profit from? What makes company A's dividends more attractive than company B's? when buying.

Thanks,

Ceasar73.

 

[rozella]

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

Hi Rozella,

I really enjoy your posts. What are the common attributes of the companies in which you make a profit from? What makes company A's dividends more attractive than company B's? when buying.

Thanks,

Ceasar73.

My strategy is based on The lure of the dividend, gives a stock a reason to rise but in saying that, the probability is higher if the stock has an increased dividend, increased profit & a good outlook for the future.....but don't coun't on it.

 

[rozella]

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

Sold AMP today @ 741.0
Bought 5th September @ 700.0 with a margin of 75%
Investment 125.0/share
Exdiv 15th September
Dividend declared 22.0/share 85% franked 8.01/share
Special dividend declared 2.0/share 85% franked 0.73/share
Gross profit 41.0/share = 32.8% return on investment. 3 days

 

[ceasar73]

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

Roz,You seem to be doing what no one else is at present....winning!
Long live rozella!

ceasar73.

 

[rozella]

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

G'day ceasar73,

My trades have been few & far between.....I have been over cautious.....I need much more to remain profitable.

XAO bouncing between 4800 & 5200.....we just need to be in synch.

SPI down 160.0 atm, so maybe able to re-enter AMP + something else at lower prices.

 

[rozella]

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

Bought BBG on the open today @ 1314.0 with a margin of 70%
Investment 394.2/share
Exdiv 22nd September
Dividend declared 28.5/share fully franked 12.21/share

 

[rozella]

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

Sold BBG on the close today @ 1345.0
Bought 10th September on the open @ 1314.0 with a margin of 70%
Investment 394.2/share
Exdiv 22nd September
Dividend declared 28.5/share fully franked 12.21/share
Gross profit 31.0/share = 7.86% return on investment. 2 days

 

[rozella]

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

Bought CAB today @ 686.0 with a margin of 65%
Investment 240.1/share
Exdiv 23rd September
Dividend declared 17.0/share fully franked 7.29/share

 

[rozella]

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

Re-entered BBG today @ 1315.0 with a margin of 70%
Investment 394.5/share
Exdiv 22nd September
Dividend declared 28.5/share fully franked 12.21/share

 

[rozella]

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

Sold BBG today @ 1349.0
Bought today @ 1315.0 with a margin of 70%
Investment 394.5/share
Exdiv 22nd September
Dividend declared 28.5/share fully franked 12.21/share
Gross profit 34.0/share = 8.61% return on investment. 1 day