Dividend hopper?

ChilliBob

Guys, 
I'm considering selling some fund holdings to make use of my cgt allowance. Before doing so I checked the Ex Dividend dates, not wanting to sell and miss a dividend. 

In doing so I realised big global index funds tend to pay dividends on a fairly reliable schedule.. So.. 

If my current investment is quarterly dividends, and I sell now, but a new fund paying annual dividends soonish, then cut back to my original fund its like I've switched in and out but got some dividends in the bargain.

This wasn't my intention but does seem like a decent benefit. 

This got me thinking, does anyone cycle their investments through similar funds or something to try and catch thes dividends?

Malthusian

ChilliBob said:

Guys, 
I'm considering selling some fund holdings to make use of my cgt allowance. Before doing so I checked the Ex Dividend dates, not wanting to sell and miss a dividend.

Why? If you sell before the ex dividend date you still get the dividend, only as part of the sale price.

A dividend is just a company moving some money you already own from a bank account you already own into a different bank account you already own.

If my current investment is quarterly dividends, and I sell now, but a new fund paying annual dividends soonish, then cut back to my original fund its like I've switched in and out but got some dividends in the bargain.

It makes no difference for the reason given above.

It doesn't matter whether you spend £100 to buy a with-dividend fund or £95 to buy the same fund that has just paid out its 5% dividend.

*edited because the MSE filter doesn't kno Latin*

Notepad_Phil

Unfortunately you haven't found a way to bag extra money.

If you had sold before the ex-dividend date then all things being equal you would have got a higher price than you received by selling ex-dividend. I.e. all things being equal you get £full-price for selling before ex-dividend, but if you sell after ex-dividend then you get (£full-price minus £dividend) + a final payment of £dividend when the dividend is paid i.e. the same total amount. Plus you may have had to pay to sell and rebuy the fund

ChilliBob

Essentially I understood it to work like this, clearly I'm wrong, but I'm not sure where or how, perhaps the gang can correct me please?!

Investment A

100k invested, ex dividend date 1st March, dividend paid on 18th April. Dividend 1%

Sell 28th March. 

On 18th April, receive £1k of dividends. 

Investment B. 

Ex dividend date 1st April. 

Dividends 2%.

Paid 15th May

Purchase 100k on 29th March. 

Sell 31 days after purchase, repurchase A. 

Received £2k in dividends. 

(Ignore the fact the 100k from A to B may not clear on the dates shown, could come from elsewhere!) 

masonic

ChilliBob said:

Essentially I understood it to work like this, clearly I'm wrong, but I'm not sure where or how, perhaps the gang can correct me please?!

Investment A

100k invested, ex dividend date 1st March, dividend paid on 18th April. Dividend 1%

Sell 28th March. 

On 18th April, receive £1k of dividends. 

Investment B. 

Ex dividend date 1st April. 

Dividends 2%.

Paid 15th May

Purchase 100k on 29th March. 

Sell 31 days after purchase, repurchase A. 

Received £2k in dividends. 

(Ignore the fact the 100k from A to B may not clear on the dates shown, could come from elsewhere!) 

You'll receive £2k in dividends and make a corresponding £2k capital loss when selling after the ex-dividend date. There is no free lunch. I don't know why you'd prefer to convert the capital into income.

ColdIron

Are these Accumulation funds?

ChilliBob

Thanks, see this is the part I don't follow. 

Can you explain more? - I think some prices would help perhaps? 

I fully grasp it seems too good to be true, and clearly it is, I just don't quite understand why.

Prism

ChilliBob said:

Thanks, see this is the part I don't follow. 

Can you explain more? - I think some prices would help perhaps? 

I fully grasp it seems too good to be true, and clearly it is, I just don't quite understand why.

The price drops on ex-dividend day by the value of the dividend. So if you sell after that you get less than you bought it for the month earlier.

Malthusian

You have £100k in A. You move £99k of that into your bank account. A few weeks later A moves the other £1k into your bank account.

You buy £100k in B. You move £98k of that into your bank account. A few weeks later B moves the other £2k.

Net result: a bunch of wasted time and dealing costs.

ChilliBob

ColdIron said:

Are these Accumulation funds?

Nope, income funds. 

ChilliBob

Malthusian said:

You have £100k in A. You move £99k of that into your bank account. A few weeks later A moves the other £1k into your bank account.

You buy £100k in B. You move £98k of that into your bank account. A few weeks later B moves the other £2k.

Net result: a bunch of wasted time and dealing costs.

Why is it not £100k then £1k, and £100k and £2k though?

I'm not disputing what you're saying, I just don't follow.

If you look at at say VLS 100 Inc, https://markets.ft.com/data/funds/tearsheet/historical?s=GB00B545NX97:GBP

The ex dividend was 1st April I believe, yes, the price has dropped but it just looks like a normal movement - if you didn't know that was Ex dividend date you'd have no way of knowing, and eith 1-2% moves normal, how can you know its attributed to the dividend and not normal market movement?

Sorry for the silly questions, I just want to fully understand