Topping Up Cum or Ex Dividend

[Gerry557]

I don't think it really matters if you are just looking at a two day period around the exdivi date.

Some high yield shares tend to rise around this date anyway in anticipation of the payment. After the date, the support of that divi dissappears and the share price tends to drop even further than the divi over time, not necessarily on that day.

The general market movement will also play a part in any direction the share is also taking.

I would have thought that the actual share price would have been more of a concern ie when it hits this price, I will buy. This might be more likely mid season rather than around the pressure of the ex divi date.

Some shares that have a quarterly dividend hopefully offset this by having smaller changes that are more spread out so less of a factor. I don't know how much extra admin or hassle this is.

The higher the yield the bigger the difference in the drop. I don't really understand the need to get the income now. If you have funds to buy a share you have no reason to want 3% of it now or whatever the equivalent amount is. We'll it not actually now, you have to wait until the payment date which could be a quarter away.

Plus if you buy when the price is low the yield is likely to be higher anyway. I see a dividend as a small sell of your shares anyway (without costs and at a set price which you might not like)

So if I was talking about just a two day period then the trend would be my friend.

[dealtn]

Consider you have £10,000 to invest in Company A that trades at £1.10 (cum div) that pays a 10p dividend.

Without wishing to sound too pedantic, that's a 9% yield which may be a little exaggerated. How do the numbers compare on a 6p dividend, say?

Consider you have £10,000 to invest in Company A that trades at £1.06 (cum div) that pays a 6p dividend. You can buy 9434 shares, and pay £50 SDRT. Or, possibly the next day, it goes to £1 (ex div) you buy 10,000 shares at £1 and the SDRT is the same £50.

[daveh]

Psychologically I like to buy cum dividend, as I like to see the dividend dropping into my account. But I realise it makes little difference either way. These days I decide what I'm going to top up and then look at the ex dates. I'll use the ex dates as a decider if I'm undecided between one or more shares, but if I had an outstanding candidate that I was going to buy, I wouldn't let the fact that it had just gone ex dividend sway my decision.

[88V8]

....my preference would always be to buy ex-div, to buy a slightly greater number of shares, which, of course, buys a slightly higher level of income for the long term, not just a one off early income benefit.

The long term... I think this hits the nail on the head.
Provided of course that the price does fall as expected, ex-divi.

The point has been well made that it can be significant on selling. Psychologically, it's nice to have that last divi.

As tjh notes, where it can matter is on selling and buying. For instance trading out of a low yielder to a high.
If one pays no attention to the divi dates, one can just miss a half year Selling divi, and have a long time to wait for the Buying divi, leaving a hole in the year's income. Been there done that.

V8

[Gengulphus]

So, the way I see it - you have £11,000 available.

Share trades @ £1.10 cum 10p dividend.
Invest £11,000. Buy 10,000 shares, pay £55 SDRT. Wait for dividend of £1,000 somewhere down the line.

Alternatively
Buy the same 10,000 shares ex div @ £1.00 ==> total cost of £10,000, pay SDRT £50. Immediately "bank" the saving of £1,000 and "save" £5 in stamp duty.

Or alternatively, since you have £11,000 available:

Buy 11,000 shares ex div @ £1.00 ==> total cost of £11,000, pay SDRT £55. No saving "banked" and no stamp duty "saved". But you don't get £1,000 when the dividend is paid, and in return every subsequent dividend payment is 10% bigger - which (as long as you don't have a fairly urgent need for extra income in the next few months) can be expected to be a good overall bargain on dividends if the company subsequently turns out to be a good HYP investment, and a poor overall bargain on dividends if it subsequently turns out to be a poor HYP investment. You're presumably expecting it to be a good HYP investment (otherwise you wouldn't be buying!) and that implies an expectation that on dividends, it will be a good overall bargain. So that way too it's an argument in favour of buying ex-dividend, though a pretty minor one (*).

But as that argument and many others indicate, what's really important is picking shares to buy that go on to be good HYP investments. A few days' difference in when you buy makes no discernable difference to the chances of a company going on to be a good HYP investment (unless news comes out in those few days that significantly changes one's assessment of the company's prospects, of course). So if you let whether the shares are ex-dividend or cum-dividend even slightly affect your decision about which share to buy, you may well end up picking a company with inferior prospects, which is liable to do more damage to your future finances than buying ex-dividend improved them by. And the easiest way (and quite possibly the only really effective way) to prevent cum/ex-dividendness affecting one's decision about a share purchase is not even to look at whether companies' shares are cum-dividend or ex-dividend...

(*) And for almost all real-life dividends, it's considerably more minor, because normal dividends are much less than 10% of the share price. E.g. for a twice-per-year 6%-yielder, the interim is typically 2-3% of the share price and the final 3-4%; if the 6%-yielder is a quarterly payer, the individual payments are typically in the region of 1.3-2.0%. A 10% individual payment is practically always a special, and even among specials, ones as big as 10% aren't all that common.

Gengulphus

[GrahamPlatt]

Well, a nice example of the contariness of the market: I bought Chesnara at £2.82 several days ago. I didn't time the purchase because of the imminent divi, but was pleased to see that one would be declared shortly. That date was today, a final of 14.29p (~5%) and the SP has declined 4.5p on the day to £2.93. Glad I didn't wait to buy ex-divi.

[dealtn]

That date was today, a final of 14.29p (~5%) and the SP has declined 4.5p on the day to £2.93.

Without a parallel universe we will never know if the share price would have been up 9.75p or so in the absence of going xd.

Good timing never the less by you.

[csearle]

It seems totally [expletive deleted] random. I reckon the daily market forces can outweigh the dividend correction. The time to buy is now!

[Gengulphus]

(*) Intended to be a practical rather than a dogmatic discussion - I have a private prediction on who is going to be the first to trot out "the time to buy is now" here... You will be named if I'm right

Since I haven't seen anyone being named, presumably you were wrong? ;-}

Gengulphus

[csearle]

(*) Intended to be a practical rather than a dogmatic discussion - I have a private prediction on who is going to be the first to trot out "the time to buy is now" here... You will be named if I'm right

Since I haven't seen anyone being named, presumably you were wrong? ;-}

Gengulphus

Sorry moorfield for possibly messing up your outcome. Chris

[Gengulphus]

(*) Intended to be a practical rather than a dogmatic discussion - I have a private prediction on who is going to be the first to trot out "the time to buy is now" here... You will be named if I'm right

Since I haven't seen anyone being named, presumably you were wrong? ;-}

Sorry moorfield for possibly messing up your outcome.

Well, you aren't the first to have said it - TJH said it earlier in viewtopic.php?p=399850#p399850. And he was only the first if one insists on that exact phrase, completely unmodified... ;-}

Gengulphus

[PaulBullet]

In an ISA its purely psychological as I don't think it makes an actual difference

However once I have chosen a purchase if I notice I can buy with or without the dividend then I will buy with as I keep track of my yearly dividend income vs my income target

just my 2p

Paul

also on purchases over 10k don't you pay an extra £1 PMT or have they abolished this

[tjh290633]

In an ISA its purely psychological as I don't think it makes an actual difference

However once I have chosen a purchase if I notice I can buy with of without the dividend then I will buy with as I keep track of my yearly dividend income vs my income target

just my 2p

Paul

also on purchases over 10k don't you pay an extra £1 PMT or have they abolished this

No, it still applies. You pay the PTM in an ISA if the purchase is in an ISA.

TJH

[IanTHughes]

also on purchases over 10k don't you pay an extra £1 PMT or have they abolished this

No, PMT is monthly. Mind you, I have never been troubled by it!


Ian

[moorfield]

(*) Intended to be a practical rather than a dogmatic discussion - I have a private prediction on who is going to be the first to trot out "the time to buy is now" here... You will be named if I'm right

Since I haven't seen anyone being named, presumably you were wrong? ;-}

Gengulphus

Sorry moorfield for possibly messing up your outcome. Chris

Don't worry, it wasn't you.

[Alaric]

However once I have chosen a purchase if I notice I can buy with or without the dividend then I will buy with as I keep track of my yearly dividend income vs my income target

Your longer term dividend may be a little lower because in the absence of market fluctuations you buy more shares when the price falls as a result of the share going ex-div.