One way that you can earn very high returns is utilizing a technique called 'buying dividends'. Buying dividends is the process of buying a stock just before it goes ex-dividend and selling it shortly after the ex-dividend date at the same [or at a higher] price as the cost price. The ex-dividend date is the date after which a buyer of the stock is no longer entitled to the dividend. In other words, if an investor purchases a stock on or after the ex-dividend date, the investor will not receive the dividend; however, if the stock is purchased prior to the ex-dividend date, the investor will receive the dividend on what is called the payment date. Another way to look at it is an investor can sell a stock on the ex-div date or later and still get the dividend.
Does it work? Let me give you an example. Last month, I bought United Online Inc. (UNTD) for 10.89 per share on April 11 and sold it on May 12, the ex-dividend date, for 11.56 per share, a return of over 6% before commission and before adding in the dividend, but that's really not relevant. The stock pays a dividend of 20 cents per share, which provided a return of 1.8% over 30 days. Annualized, it worked out to about 22%. [Full disclosure: author still owns UNTD in a retirement account.]
But I need not have tied up my money for a month. I could have bought the stock for 11.31 [closing price] on Friday, May 9, and sold it Monday, May 12, for 11.91 [closing price]. The gain on the stock was 60 cents, plus the 20 cent dividend is a return of 80 cents or 7% over a period of three days [before commission]. The annualized return is ridiculously high at 860%. But even if you broke even on the purchase and sale price, just the return on the dividend provided a 215% annualized return.
Generally, stocks are supposed to drop by the amount of the dividend on the ex-dividend date, similar to mutual funds, which always drop by the dividend amount. But in strong markets, the price of the stock can hold its value. This technique works often in bull markets, sometimes in flat or choppy markets, but for bear markets? Forget it. Sometimes you can sell the stock on the ex-dividend date, sometimes you have to hold the stock for a few days, and sometimes you have to hold the stock for a few weeks in order to sell the stock at what you paid or higher. In other words, this technique doesn't always work. But if it is a stock worth holding for the long term, what do you have to lose?
If you just want to buy a stock for the long term, look for the best ones that pay quarterly or provide monthly dividends. But if you are looking for a quick return in a short period of time, you might want to try buying dividends. The following are seven stocks with relatively low P/E ratios, low PEG ratios, high yields, and are going ex-dividend next week.
Genesis Lease Limited ( GLS ) ex-div date: 5/19/2008 yield: 11.75% P/E: 15 PEG: 1.38 Dividend: 0.47
Partner Communications Company Ltd ( PTNR ) ex-div date: 5/23/2008 yield: 6.20% P/E: 12 PEG: 1.76 Dividend: 0.35
Advanta Corp. ( ADVNB ) ex-div date: 5/21/2008 yield: 8.90% P/E: 6 PEG: 0.51 Dividend: 0.2125
Advance America, Cash Advance Centers ( AEA ) ex-div date: 5/22/2008 yield: 5.90% P/E: 14 PEG: 1.17 Dividend: 0.125
Journal Communications, Inc. ( JRN ) ex-div date: 5/22/2008 yield: 5.41% P/E: 10 PEG: 1.42 Dividend: 0.08
Community Capital Corporation ( CPBK ) ex-div date: 5/21/2008 yield: 4.46% P/E: 10 PEG: 0.99 Dividend: 0.15
Carnival Corporation ( CCL ) ex-div date: 5/21/2008 yield: 3.76% P/E: 14 PEG: 0.96 Dividend: 0.4
By the way, the stocks that pay semi-annual dividends pay dividend payments that are on average higher than the payments made on quarterly paying stocks, so it may we worth taking a closer look at dividend buying with those stocks.
Author owns UNTD.
By Fred Fuld at Stockerblog.com
6 comments:
I appreciate the info.! I never knew whether I should buy the stock on the ex-dividend day, or sell it then. Now, I know that I can buy it at the close the day before ex-d, and sell it at the open on the ex-d day, right?
To be entitled to the dividend, you need to buy the stock on the business day before the ex-dividend day, before the stock market closes. (I don't know if you would be entitled to the dividend if you buy in after-market hours - you would have to check with your brokerage firm.) Then the stock can be sold on the ex-dividend day, after the market opens. By the way, this process generally only works in bull markets, and even then doesn't work all the time, especially selling on the ex day. Usually the stock drops by the amount of the dividend on the ex-dividend day, just as it always does with mutual funds.
I intend to buy some div. but I
am a little confused. Some of the
stocks that you list have a record
date after the ex date:
znt ex. 7/29 record 7/31
wsm ex 7/23 record 7/25
Is this a mistake by td amer.
or can you buy these after the ex
and still get the div.
thanks for your essay.
I've tried it with 3 stocks:
kwr cbrl and cl.
My pleasent problem is that the stocks rose enough that I put stops
kwr bought26.53... sold 27.50 all in one day the day before the ex.
kwr actually rose the day of the ex.
cbrl 19.35 yes. sold 20 today.It
will be interesting what cbrl does
on the ex.
cl 49.20 today sold at 53 today. I might buy cl again before the ex.
Two questions:
Do you put stops on rising stocks
or do you usually hold to the ex for the dividend?
When a stock drops the div. amount on the ex. is it a good buy because
it will regain it's price say within a week.
Please give us a list of stocks for Aug.
Thanks again for the interesting essay
When you buy the stock for the dividend, you must take the T+3 rule into account. Make sure you buy the stock 3, preferably 4, days before the ex date. It takes 3 days for the stock to hit your account and for paperwork to be completed. If you buy the stock the day before the dividend ex date, you won't receive the dividend.
I thought Date of Record is the key date. Ex-dividend is 3 days before Date of Record. Thus you don't have to do math to figure out when you can buy for dividend.
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