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Dividends
The Pensioner
Posted: 25 April 2018 14:18:08(UTC)
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It may be 'old hat' but ... does it make sense to buy a high-yielding share (or fund) just before it goes ex-dividend and sell after it's gone post-dividend .. if the price hasn't dropped (or drops but recovers soon after) and the dividend is more than the cost of buying ie bid/offer + buy/sell commission + stamp duty (obviously these charges wouldn't apply to a fund .. such as RLSEYB)
Alan Selwood
Posted: 25 April 2018 14:50:01(UTC)
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I can't see merit myself, especially as you are turning capital into income, which is probably more heavily taxed unless in ISA/SIPP. Charges are charges, and dividends are not that high relative to charges unless you are selling monster-size holdings with a fixed-rate commission charge. Stamp duty on the repurchase is a terrible drain (unless AIM or overseas market based in Sterling, e.g. the Channel Islands where you're not paying the platform currency conversion charges as well!).

Since the market exists, any financial merit in selling XD and buying back cum-dividend will be ironed out by opportunists.
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Sara G
Posted: 25 April 2018 14:55:25(UTC)
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I think 'dividend-chasing' does go on, but personally I don't bother. Also I'd be wary of basing a decision solely on a high yield - you could end up owning a Carillion and the bounce may never come.
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Tim D
Posted: 25 April 2018 15:01:34(UTC)
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Yes, what Alan said. If there was money to be made from this simple trade, it'll be well and truly arbitraged away by professional traders.

Having said that:

* I vaguely remember a comment on these forums from someone who was fussy about which side of xdiv they bought/sold their (non-tax-sheltered) shares because it let them skew their income and capital gains a little in their favour.

* Apparently some funds (and I've also heard ETFs accused) internally engage in these sort of games for the purposes of "dividend juicing" - boosting yield at the expense of capital. It makes no difference to total return... it's purely a marketing wheeze to exploit investors irrational preference for dividends. More on this here.
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Tony Peterson
Posted: 25 April 2018 15:19:49(UTC)
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Tim D

It might have been me. I am not hard and fast about it but, especially in view of the new dividend tax, ( which has me gently easing low yielding shares out-of-ISA and high yielders into ISAs), I tend to buy out of ISA shares when they are ex-div and in-ISA shares when they are cum div. This reduces my taxable income by converting it into gain (which I can control the sale of) and letting me play with the proceeds of a profitable-in-ISA share even before the dividend has arrived.

The effect is not terribly significant. I think it just increases the fun element I get by trying to optimise the residue of a pathetic lifetime's earnings into a dividend stream I still find it hard to believe I actually enjoy. A letter from HMRC this morning assures me I will not enjoy quite so much in this new tax year.

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The Pensioner
Posted: 25 April 2018 15:37:29(UTC)
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Sara G;61243 wrote:
I think 'dividend-chasing' does go on, but personally I don't bother. Also I'd be wary of basing a decision solely on a high yield - you could end up owning a Carillion and the bounce may never come.


Aaarrghhh .. you used the 'C' word!!!
Big boy
Posted: 25 April 2018 15:48:29(UTC)
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I think in theory and practise you will not make any net gains. Shares normally fall by the net dividend.
Unit Trusts Managers have in the pass needed to buy extra dividends (exchanging capital for income) in order to support the revenue a/c whereas ITs don't have the need as they can resort to revenue reserves.
One of many advantages that ITs have over UTS.
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The Pensioner on 25/04/2018(UTC)
The Pensioner
Posted: 25 April 2018 16:13:12(UTC)
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Ok, so I buy £20,000 of BP - costs for buying and selling £24 buy/sell commission + £100 stamp duty = £124
The dividend @10c will be £270 giving me a profit £146
I sell as soon as it goes ex-dividend assuming that the price hasn't dropped (maybe I have to wait a short time .. possibly until after the next dividend payment) and reinvest the proceeds.
There is, of course, the potential downside of the shares dropping ... but £146 profit in 2 weeks?
As a pensioner aged 71 living off my pension and investments (and having time on my hands!?), dividends are very important
The Pensioner
Posted: 25 April 2018 16:25:38(UTC)
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Big boy;61250 wrote:
I think in theory and practise you will not make any net gains. Shares normally fall by the net dividend.
Unit Trusts Managers have in the pass needed to buy extra dividends (exchanging capital for income) in order to support the revenue a/c whereas ITs don't have the need as they can resort to revenue reserves.
One of many advantages that ITs have over UTS.


But IT's can have big bid/offer spreads plus there's buy/sell commission and stamp duty .. which there isn't on unit trusts. Over the long haul I agree but doing short term trades for the dividend is a different kettle of fish!
Jim S
Posted: 25 April 2018 16:26:12(UTC)
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The Pensioner;61252 wrote:
Ok, so I buy £20,000 of BP - costs for buying and selling £24 buy/sell commission + £100 stamp duty = £124
The dividend @10c will be £270 giving me a profit £146
I sell as soon as it goes ex-dividend assuming that the price hasn't dropped (maybe I have to wait a short time .. possibly until after the next dividend payment) and reinvest the proceeds.
There is, of course, the potential downside of the shares dropping ... but £146 profit in 2 weeks?
As a pensioner aged 71 living off my pension and investments (and having time on my hands!?), dividends are very important


I think you will probably see shares dropping by around the divi amount when they go ex-div, although that might be hidden or magnified (depending on what the SP would have done anyway based on other news)

Something a bit similar I have done is bought an Investment Trust just before its NAV was recalculated. Can't remember which IT it was, but some of the smaller ones don't calculate NAV daily, it can be monthly or even 3 monthly. So if you can be fairly confident the NAV is about to rerate up (either because you know the holdings or the market has gone up strongly since last time) there's some potential for buying ITs at a slightly higher real discount than the headline discount.
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Keith Cobby
Posted: 25 April 2018 16:31:18(UTC)
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I think many of the high yielding funds do this to generate dividends. I think high portfolio turnover is a red flag that a manager is buying income. I hold HFEL and several years ago the portfolio turnover was over 100%. Must be careful that your high income is not merely a (slow) return of your capital. This is why I have posted before that high dividends are an illusion and that total return is the most important metric.
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The Pensioner
Posted: 25 April 2018 16:32:19(UTC)
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Alan Selwood;61239 wrote:
I can't see merit myself, especially as you are turning capital into income, which is probably more heavily taxed unless in ISA/SIPP. Charges are charges, and dividends are not that high relative to charges unless you are selling monster-size holdings with a fixed-rate commission charge. Stamp duty on the repurchase is a terrible drain (unless AIM or overseas market based in Sterling, e.g. the Channel Islands where you're not paying the platform currency conversion charges as well!).

Since the market exists, any financial merit in selling XD and buying back cum-dividend will be ironed out by opportunists.


Maybe I'm one of the opportunists!!?
Big boy
Posted: 25 April 2018 16:38:54(UTC)
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The Pensioner;61254 wrote:
Big boy;61250 wrote:
I think in theory and practise you will not make any net gains. Shares normally fall by the net dividend.
Unit Trusts Managers have in the pass needed to buy extra dividends (exchanging capital for income) in order to support the revenue a/c whereas ITs don't have the need as they can resort to revenue reserves.
One of many advantages that ITs have over UTS.


But IT's can have big bid/offer spreads plus there's buy/sell commission and stamp duty .. which there isn't on unit trusts. Over the long haul I agree but doing short term trades for the dividend is a different kettle of fish!


Can you theirfor buy and sell unit trusts at same price???....who absorbs the commission,bid/offer spread,trustee fees and AMC etc. Also presume if redemptions they will move from "offer basis" to "bid bases" which was a few %.
With UTS do we know if AMC/exs come from revenue/capital a/c.
King Lodos
Posted: 25 April 2018 16:40:44(UTC)
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When you buy a share in a company, you own a portion of that company's worth .. When it's gone ex-div, it's worth exactly that much less.

So before trading opens on ex-div day, the share price is marked down by the amount of the dividend.

So there's no edge I'm aware of .. There may be some behavioural patterns around trading influenced by ex-div dates .. But there's no way to generate something from nothing, on the whole.
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Big boy
Posted: 25 April 2018 16:41:57(UTC)
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The Pensioner;61252 wrote:
Ok, so I buy £20,000 of BP - costs for buying and selling £24 buy/sell commission + £100 stamp duty = £124
The dividend @10c will be £270 giving me a profit £146
I sell as soon as it goes ex-dividend assuming that the price hasn't dropped (maybe I have to wait a short time .. possibly until after the next dividend payment) and reinvest the proceeds.
There is, of course, the potential downside of the shares dropping ... but £146 profit in 2 weeks?
As a pensioner aged 71 living off my pension and investments (and having time on my hands!?), dividends are very important


Perhaps if you do this weekly you will be very rich.....not for me....I prefer easier ways of getting rich.
The Pensioner
Posted: 25 April 2018 16:45:02(UTC)
#12

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Big boy;61260 wrote:
The Pensioner;61254 wrote:
Big boy;61250 wrote:
I think in theory and practise you will not make any net gains. Shares normally fall by the net dividend.
Unit Trusts Managers have in the pass needed to buy extra dividends (exchanging capital for income) in order to support the revenue a/c whereas ITs don't have the need as they can resort to revenue reserves.
One of many advantages that ITs have over UTS.


But IT's can have big bid/offer spreads plus there's buy/sell commission and stamp duty .. which there isn't on unit trusts. Over the long haul I agree but doing short term trades for the dividend is a different kettle of fish!


Can you theirfor buy and sell unit trusts at same price???....who absorbs the commission,bid/offer spread,trustee fees and AMC etc. Also presume if redemptions they will move from "offer basis" to "bid bases" which was a few %.
With UTS do we know if AMC/exs come from revenue/capital a/c.


Yep, I've done it
I'm with HL and I've sold a unit trust in my vantage account to realise a capital gain and bought back at the same time in my pension to keep the holding. The figures were identical.
william barnes
Posted: 25 April 2018 16:57:39(UTC)
#21

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I completely agree with King L
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King Lodos on 25/04/2018(UTC)
Tyrion Lannister
Posted: 25 April 2018 18:18:23(UTC)
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Tim D;61245 wrote:
Yes, what Alan said. If there was money to be made from this simple trade, it'll be well and truly arbitraged away by professional traders.

Having said that:

* I vaguely remember a comment on these forums from someone who was fussy about which side of xdiv they bought/sold their (non-tax-sheltered) shares because it let them skew their income and capital gains a little in their favour.

* Apparently some funds (and I've also heard ETFs accused) internally engage in these sort of games for the purposes of "dividend juicing" - boosting yield at the expense of capital. It makes no difference to total return... it's purely a marketing wheeze to exploit investors irrational preference for dividends. More on this here.


I know this happens but really don't mind. If you're looking for income, this can be to your advantage as it cuts down the need to sell stocks and pay the associated fees.

I invest in EAT, and I've no problem with them doing this.
MoMoney
Posted: 25 April 2018 18:23:17(UTC)
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https://www.investopedia.../dividend-arbitrage.asp

Pre volcker Most Wholesale banks have a very small desk running an arbitrage book. Makes peanuts but enough to support a 2-3 man team.

Not sure you can game divis just based on them crystallising as there is no change in pv + cash?
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Tim D on 25/04/2018(UTC)
andy
Posted: 25 April 2018 19:24:08(UTC)
#23

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I dont think it is hard and fast rule but I have noticed (or I think I have noticed) that in more volatile times people sell after the ex-div date - as such the price on what I am watching has gone down by more than the dividend.

Re: EAT - yes - this has been subject to much discussion on here. As I have said before - I hold EAT but it sits firmly in my growth pot as it is using growth to fuel that 6% dividends.

Is this general or just a co-incidence?
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Keith Cobby on 25/04/2018(UTC), what me, worry? on 26/04/2018(UTC)
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