Ex Divi strategy-comments please

C_Mababejive

Comments on what can go wrong with this strategy please..

Shares in a company are already owned via a nominee account which provides an auto drip service at a nominal rate.

The ex divi date of the company is close and the share price is level or slightly lower than the norm.

The investor spends a large sum of cash to buy shares in the company just before the ex divi date. After the ex divi date he then sells and hopefully gets most of his money back.

On divi pay date,the divi arrives and is auto invested in new shares.

And repeat with this or other shares..

Comments ?

ChesterDog

It's the "...hopefully gets most of his money back..." bit that's the problem.

As the ex-div date arrives the price will almost certainly drop by at least the value of the dividends.

Then there's the dealing costs, the spreads....

Edit: And how can you decide the price is 'level or slightly lower than the norm'? Perhaps that's because the market is eyeing a fall.

C_Mababejive

I agree there may be a short term mini haircut but you will have acquired a batch of shares courtesy of drip which then create cumulative growth..thats what im thinking..

le_loup

The value (assets) of a company drop when it declares a dividend because it no longer owns the asset of the cash it is paying out. Its share price will drop on that day assuming there is no market movement.
Why do you think that no one else is doing what you propose?

C_Mababejive

le_loup wrote: »

The value (assets) of a company drop when it declares a dividend because it no longer owns the asset of the cash it is paying out. Its share price will drop on that day assuming there is no market movement.
Why do you think that no one else is doing what you propose?

Hi..yes i appreciate your points..but surely it creates scope for longer term gain..?

le_loup

Just buy shares and reinvest the dividends. Exactly the same outcome.

jimjames

C_Mababejive wrote: »

Hi..yes i appreciate your points..but surely it creates scope for longer term gain..?

Doesn't long term buy & hold with reinvestment give the best long term gain? You then aren't losing from trading costs and spread.

Sophie-1

I tried doing what you suggested and it doesn't work the market will usually (but not always) revalue the shares immediately after the ex div is declared.

Thrugelmir

Buying ex div is a more sensible route than !!! div.

the !!! unfortunately block out the terminology.

Biggles

I've just been pursuing a very slightly different strategy in order to make capital losses to write off against my gains and draw the dividends as income instead.

It's been pretty successful, enabling me to crystallise nearly £20k in capital gains this year without triggering CGT instead of the annual exempt amount of £10,900. I've even ended up 'winning' nearly £1k in dividends over and above the capital losses I've made.

There is a limit, however: the dividends, including the tax credit, count for income tax and if you receive more than a certain amount (which will be different for each of us) it will push you up into the next bracket for income tax.