Ex Divided dates and turning a profit?

mark260311

Hey,

So I have been looking about for something to do with an extta bonus payment I an about to get. I came across ex divided dates by chance.

I was thinking, could I

1) By x number of shares just before ex divided date
2) Hold shares till after dividend payment
3) Sell shares again for the same/more than purchased (I.e. hold as investment until at least at purchase price)

My thinking is that with dividend payments adding to the invested amount I could build a nice little profit.

Is this feasible/ legal??

sentinel7

You'll find the share price drops as soon as the share goes ex-dividend. So you'll get the dividend, but the shares will be worth less.

Wilkins

sentinel7 wrote: »

You'll find the share price drops as soon as the share goes ex-dividend. So you'll get the dividend, but the shares will be worth less.

Also, there will be the transaction costs and stamp duty, so the strategy will be loss making. Churning shares is the most reliable way to lose money on the stock market.

thenudeone

Everyone knows exactly when the dividend will be paid and how much, so it's already factored into the prices, which will drop by around the amount of the dividend once it becomes ex-div.

It's possible to use the timings to move some income to capital gains or vice versa for tax reasons, but there are costs and risks involved.

WatsonNimrod

I've had the odd share that's been worth more after a div payout but it's very rare, funnily enough both have been this year and both entirely by coincidence because of unexpected factors.

2 in 20 odd years is not a great ratio out of 100s of different shares I've owned.

It's one of first thoughts everyone has when they first start looking at shares, I thought the same years ago, once you get to know the mechanics of the markets you will realise that money is made elsewhere with other tactics.

le_loup

The share price is not only affected by buying and selling. When a share goes ex-dividend the company is actually worth less. Some of its assets have become liabilities; its balance sheet is smaller.
If you know so little about the value of companies, it would be best for you to avoid shares altogether, put your money in the Post Office and do some intense studying. I say this only to protect you from yourself.

ChesterDog

I considered this notion myself when I started out a few years back. For the reasons others have said, it doesn't work. Any positive returns are going to be hard won and very small.

If you are like I was (keen, opportunity-seeking), you will come up with a few such ideas. But they don't work. The market's so-called 'efficiency' will always be working against your neat little ruses.

mark260311

ChesterDog wrote: »

I considered this notion myself when I started out a few years back. For the reasons others have said, it doesn't work. Any positive returns are going to be hard won and very small.

Exactly - Hard won, so it feels like I worked for something
Small - but will the same value I win will be added to the pot and will grow over time.

I look at it like a challenge. Small gains added over again and again for an eventual large(er) payout. I really just want to get it to the level where I am able to set up a 5/10 year managed fund. I may still give this a bash. Im prepared to lose approx 5-12% of my capital. If I do I will jsut stick it in a couple of isa's untill I learn a new method!

Thrugelmir

Shares also trade at a spread Buying/Selling price.

Buying ex div is a strategy that can be adopted. As often not only does the share price drop due to the declared dividend, but also the price drifts lower as the financial results are digested.

WatsonNimrod

You just have to think if there was money in it, everyone would be doing it!

I just cant imagine why anyone would do it, the tiny gains would be wiped out by one stinker!

bowlhead99

Here is an example. On Monday, a company can be bought for 100.1p or sold for 99.9p (mid price 100p). It has announced a 2p dividend and will go ex-dividend on Tuesday.

You buy on Monday, buying 1000 shares for £1001, plus £10 dealing fee and £5 stamp duty, total price £1016.

On Tuesday, the share goes ex-dividend as was already known weeks ago. Each share in the company now represents 2p fewer assets (because 2p per share is going to go out the door to shareholders). The share price drops from 99.9-100.1p to 97.9p-98.1p. You sell your 1000 shares for £979, less £10 dealing fee, and receive £969. Later that month you receive £20 of dividends, and need to pay tax on them if you are a higher rate taxpayer and it's not in an ISA or SIPP.

So you spent £1016 and received back £989 total. You are out £27 and maybe some tax on top. The £27 represents two £10 dealing fees, £5 stamp duty and a couple of pounds of spread.

The only way to not be out £27 is if you can deal for free, don't pay stamp duty, and don't pay tax. Or, if for some reason the share price falls by less than the dividend.

In reality the prices of shares change by the day, sometimes by several percent. If you're lucky enough that the price was going to rise 5% on Tuesday due to general market news, then that 5% rise would more than cover the 2% expected to be lost from the dividend payout, and would also cover your ~2.7% deaing costs. Once you received the dividend later that month, yay, you're a winner.

However if the market rise was not 5% but only 1%, or 0%, or a fall of 1%, or a fall of 5%, you would be a net loser.

So essentially any gains are just coming from the background noise of the market, which on any given day are unlikely to cover your dealing costs if you aren't dealing in very large quantities, and they are just as likely to be losses as often as they might be gains.

Exactly - Hard won, so it feels like I worked for something

You misunderstand. Hard won because they are so infrequent and unlikely and mostly they are losses. So of course it feels like you worked hard or were lucky if you won. Because you were indeed, lucky. It was not your strategy that paid off because the strategy is breakeven, and lossmaking if you pay dealing costs, tax or stampduty.

Small - but will the same value I win will be added to the pot and will grow over time.

The small values you lose will be deducted from your pot which will shrink over time.

Not sure if you are just trolling. If you don't understand, don't invest.

Im prepared to lose approx 5-12% of my capital. If I do I will jsut stick it in a couple of isa's untill I learn a new method!

How will you learn a new method by keeping cash in an ISA and not experiencing how markets work? I suggest a lot of reading.

If that doesn't float your boat, just buying and holding a couple of investment funds for a long period of time should give you some fair returns. Of course, that will not be an overnight sensational easy get-rich-quick method, because those don't exist.