Online Calculator | TRADE THE SHARE EX-DIVIDEND DATE – TOP WAYS

TRADE THE SHARE EX-DIVIDEND DATE – TOP WAYS

The ex-dividend season is upon us. Time to either receive your compensation for being a long term share holder during volatile times,  or for the short term trader – to trade a number of share dividend situations.

Not only are there large dividend yields ripe for the taking – very healthy franking credits are also available.

Read on for some clever neutral techniques and shorting techniques, in addtion to purely going long high yielding dividend stocks.

Historically, dividend yields are quite high at the moment. Many  Australian stocks maintaining or increasing their dividend while the market is pressuring their prices.The upshot of this is that there are some terrific yields available.

Dividend season is also a time of some interesting sources of alpha to be aware of. Macquarie Alpha Fund quants have found a reliable and repeatable source of alpha around high yielding stocks. Going long high yielding stocks 30 to 60 days ahead of the ex-dividend date consistently outperforms the general market. This is the popular dividend stripping strategy. Buying the cum-dividend stocks, holding for an ex-dividend date runnup and then selling ex-dividend to collect the dividend, the franking credit and potentially- a capital gain. Be careful though that this holding period is when many companies confess they are not going to reach their earnings targets and also usually encompasses the earnings report date.

Upcoming share dividend season in Australia has traders and investors licking their lips.

To help with cash-flow, try looking for a short duration from the ex-dividend date to the payment date.

With so many strategies to evaluate, how you trade the dividend season depends on your market outlook and attitude to risk,but here are five best dividend ideas worth considering:

  1. Get your $5000 share of free franking credits. This means you don’t need to hold the stock for 45 days and you can just roll from stock to stock using a margin loan to buy the shares, but not the CFDs, mini’s or barrier warrants as you won’t qualify for the franking credits.
  2. Momentum trade. Go long the best high yielding stocks on their earnings reports if share price continues to go up after the initial jump.
  3. Buy high yielding shares with excellent momentum relative to their sectoral brothers 45 days before to the ex-dividend date. Be prepared to close or hedge on profit warnings and around the earnings date. Close on the ex-dividend day unless the stock is outperforming in its sector.
  4. Short under performers once ex-dividend. These are the shares that were driven down by the market on their profit results. Academic studies have shown these will continue to drift.
  5. To reduce market risk, try pairs trading by being long a positive momentum cum-dividend stock and short  an under performing ex-dividend stock.

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