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Things aren’t going all that well with my dividend farming. Share prices now tend to fall more on the first day following the ex dividend date than the dividend itself. In short, the speculator/investor (quite an interesting concept, isn’t it?) would’ve been better off buying the share without the dividend on the Monday rather than the Friday buying that catches the dividend.
But no, my dividend farming is actually doing quite well – if you look at it over a longer term than Friday to Monday.
Readers will remember that in Finweek of 4 March – which was available from Monday, 28 February – we strongly recommended buying Woolworths shares before the close of trading on 4 March. For most of that week the share traded at around 2600c. The price is currently 2750c and a dividend of 50,50c/share was paid into investors’ accounts on 14 March. That’s nice. And our prediction of a return of 15% (the dividend and capital together) on Woolworths over the next 13 months looks as if it will be achieved very soon.
But elsewhere things aren’t going too well, and in the current weak market we should perhaps think again about this kind of farming – especially if the term is too short. Look at the old big gun British American Tobacco. Investors who bought the share before 4 March qualify for the 935c/share dividend to be paid on 5 May. In the week preceding 4 March, the share was trading at around R280. Deduct the dividend and the effective cost price falls to just more than R270 for the dividend farmer. However, BAT is currently trading at only R265. So the dividend farmer effectively paid 1500c for a 935c/share dividend. It sounds as bad as ordinary farming.
A few other shares did the same thing between Friday and Monday last week. MTN’s price fell by 457c after a 349c/share dividend. Anglo American’s share price lost 499c after its rather modest dividend of 289c. The price of AVI fell even more sharply – by 140c – in exchange for the dividend of 50c/share. That’s not good business.
The new listed insurer – MMI – did slightly better and its share price fell by only 65c between Friday and Monday after a dividend of 63c/share.
I burnt my fingers – fortunately, only lightly – and there are a few clear lessons to be learned. The current share market is too weak for you to try playing the Friday/Monday cum and ex dividend game. But the view and the steps taken – as in the case of Woolworths, where the predicted cash dividend return of around 8% over the next 13 months was enough to convince the investor to exchange his deposit at the bank, where it’s earning 5% – for the dividend are the right approach.
There’s no such thing as day-to-day farming. That’s what someone hawking vegetables does. Just like ordinary farming with mealies, the dividend farmer has to look at the full season. Try to pick up the three dividends – final, interim and final again – within 13 months and take the possible increase in the share price as a bonus.
Enjoy your farming. Unfortunately, there’s nothing that caught my eye last week.
But no, my dividend farming is actually doing quite well – if you look at it over a longer term than Friday to Monday.
Readers will remember that in Finweek of 4 March – which was available from Monday, 28 February – we strongly recommended buying Woolworths shares before the close of trading on 4 March. For most of that week the share traded at around 2600c. The price is currently 2750c and a dividend of 50,50c/share was paid into investors’ accounts on 14 March. That’s nice. And our prediction of a return of 15% (the dividend and capital together) on Woolworths over the next 13 months looks as if it will be achieved very soon.
But elsewhere things aren’t going too well, and in the current weak market we should perhaps think again about this kind of farming – especially if the term is too short. Look at the old big gun British American Tobacco. Investors who bought the share before 4 March qualify for the 935c/share dividend to be paid on 5 May. In the week preceding 4 March, the share was trading at around R280. Deduct the dividend and the effective cost price falls to just more than R270 for the dividend farmer. However, BAT is currently trading at only R265. So the dividend farmer effectively paid 1500c for a 935c/share dividend. It sounds as bad as ordinary farming.
A few other shares did the same thing between Friday and Monday last week. MTN’s price fell by 457c after a 349c/share dividend. Anglo American’s share price lost 499c after its rather modest dividend of 289c. The price of AVI fell even more sharply – by 140c – in exchange for the dividend of 50c/share. That’s not good business.
The new listed insurer – MMI – did slightly better and its share price fell by only 65c between Friday and Monday after a dividend of 63c/share.
I burnt my fingers – fortunately, only lightly – and there are a few clear lessons to be learned. The current share market is too weak for you to try playing the Friday/Monday cum and ex dividend game. But the view and the steps taken – as in the case of Woolworths, where the predicted cash dividend return of around 8% over the next 13 months was enough to convince the investor to exchange his deposit at the bank, where it’s earning 5% – for the dividend are the right approach.
There’s no such thing as day-to-day farming. That’s what someone hawking vegetables does. Just like ordinary farming with mealies, the dividend farmer has to look at the full season. Try to pick up the three dividends – final, interim and final again – within 13 months and take the possible increase in the share price as a bonus.
Enjoy your farming. Unfortunately, there’s nothing that caught my eye last week.
