Fun With Dividends-A Thought Exercise

[Spock]

I put 9 turns into effect yesterday. One of which (Footlocker) I closed out almost immediately with a nice, quick gain.

Since I have to start somewhere, for the plain vanilla US companies with a 4% annual dividend which gives me 1% to play with on my time frame (Quarterly) ; I listed them at a price for an automatic sale that would give me a 2% gain prior to the dividend. If they sell for that price; I will forego the dividend.

Not sure how I will handle listing these companies after the dividend dates if they don't sell ahead of time. My initial thought is to begin by listing them with a 1% gain on the sales price. which which would be added to the dividend. I can adjust the sales price if necessary.

Based on what I saw happen yesterday with several of the companies, I may not be aggressive enough with the initial 2% gain listing. They were rising and falling all over the place. So I will see about that over time.

[Spock]

Noting what I said above about possibly not being aggressive enough in my automatic sales price listing prior to the the dividend dates.

This morning, I got automatically sold out of Cracker Barrell with a 2% gain and it went a little higher than that before dropping back.

I bought this yesterday and it has an ex-dividend date of April 14.

I did start a turn this morning for a company that has an ex-dividend date of April 29th. Other than the foreign companies, this is the farthest away date in the experiment yet.

Because that is quite a ways out, I think I will initially list it for automatic sale for a gain of 4%.

Note-Of the 9 turns I started yesterday, 2 have already been closed out at a nice gain.

[Spock]

As I am refining my protocol for company selection:

I don't think I am after companies that are really stable in price for this game; I think I want companies that often move 2 to 3 percent in a day.

[Spock]

I decided I am going to continue the experiment (game) but I am going to end the thread with the comment (as I said earlier).

Contrary to "The 5-second on Google experts" early in the thread; the price action of Verizon around the relevant dates provides initial proof of concept that the strategy has potential.

[Spock]

I know I said I was ending the thread, but while I am not going to give away any more trade secrets (LOL) a couple of funny things happened.

The company that I do my trading through is getting a little snippy.

I go from making a handful of trades per year to making several dozen in one week. They are bitching about waiting to trade with "Settled funds." Oh, well-it might slow the pace, but the big rush should be behind me now. I was buying and selling with the same money too many times in too short of a period.

I added a couple of nice features to the spreadsheets yesterday that make the process much easier and more automatic. Which is what I am after for when we get in the fields.

For fun, I also added an annual return column. That number gets pretty funky when you hold a stock for 2 days and sell for a nice gain.

[Spock]

So much for ending the thread, I guess.

Not counting AT&T, I am just hitting the first company (The Buckle) (BKE) for which I will be getting a dividend.

I won't do the work for you, or give you any of the special sauce included in my strategy-but just a heads up, if anybody wants to watch it a little over the next few days.

[Spock]

I figure it would be unfair to anybody who followed along this far to leave them hanging as to the resolution of the AT&T portion of the exercise.

As of market's close today-I am sitting on about a 7 and half percent gain on AT&T and the associated Warner Brothers Discovery shares.

I will update this tomorrow when markets close for the week. Tomorrow is also the date of record for dividends so we move past these dates next week.

To be true to the spirit of the game, my plan is to list the "Game" associated shares of both companies for sale in the middle of next week.

You may remember that I also made a long-term investment in AT&T (and thus WBD) the day after I made the "Game" purchases.

[Spock]

I mentioned a question earlier that I have no possible way to answer, but it is kind of interesting and I do have one data point from today.

I have often wondered for high dividend stocks with a lot of automatic dividend re-investment plans, if the stock has an upward bias on the day after the dividend is paid and there is that extra demand for shares.

I got paid the Phillip Morris dividend yesterday and today that money was used as part of an automatic dividend re-investment plan as presumably happens with a lot of the Phillip Morris dividends.

Today, Phillip Morris was up .71% and Altria was down .2%.

While I no longer re-invest my Altria dividends, it will be fun to see what happens when the roles are reversed and it is the day when Altria dividends are being re-invested.

Note:-Altria was once part of Phillip Morris and was spun-off many years ago.

[Spock]

I implemented 2 timing experiments today with turns that I bought Monday, April 11. I would have been willing to take a loss on these turns to run the experiment, but it didn't work out that way.

I watched a video last night that said, as long as you buy shares the day before the Ex-Dividend day, you can sell the shares on the Ex-Dividend day and get the dividend. I guess we will see about that.

1) Buckle-today is the day after the ex-dividend day. I could not be around right away to watch the markets so I had them listed for an automatic sale that would give me a 2% gain on the shares alone. Buckle rose on the open and just hit my sale number and they sold and then dropped back down.

I would have been willing to sell for a substantial loss later today, if necessary to conduct the timing experiment.

So, assuming I get the Buckle dividend-I got a 3% return since Monday.

As with Verizon; Buckle provides proof of concept that my strategy has potential merit.

2) As another timing experiment, I sold Ennis (EBF) today, which is the Ex-Dividend day, to see if I still get the dividend.

Once again, I would have been willing to sell for a substantial loss to conduct the timing experiment, but I sold them for a very small gain of .11% on the shares. If I get the dividend-the gain on Ennis will be 1.47% since Monday.

[Spock]

By no means is this a day-trading strategy, the timing looks to be built around about a 2-week time frame.

However, having said that, if I happen to be on the computer and I see that I can make a quick 3% gain for something I bought 2 hours ago, as just happened a few minutes ago, I am going to take it.

That is 2 turns this week closed out in 2 hours for over 3% gains each.

[Spock]

I decided to close out the AT&T/Warner Brothers trade today, with a gain of 8.13% after 8 days of ownership.

After really the first week of heavy implementation of the game (experiment?) and disregarding the anomalous gain from AT&T, I have a gain of $75.15 on closed turns. With gains on all closed turns, even if I don't get the dividends on the timing experiments run today.

I have 9 open turns in progress. I should have a few more, but the company I trade through slowed me down and will only let me trade with settled funds so that slows the process down.

Remember, I standardized a turn to as many whole shares as I can buy for $500.

I am very serious about seeing how this experiment works out.

[Spock]

Actually, I realized that I had not included the dividends on Turn #1(Verizon) which I will be getting; so instead of the $75.15 gain referenced above-I have a gain of $76.71 from the initial 10 days of the game. (Not counting AT&T)

This is from 11 closed turns. 2 of which were substantially smaller than my (now) standard $500 turns and one of which was sold at roughly break-even as part of the timing test. It was sold in the first hours of the ex-dividend day. Normally, I won't close a turn at that time (unless I have a nice gain) to allow any dividend capture strategy Ex-Dividend day drop to work its way out of the system.

Next week will be interesting as the first of the European companies with an annual dividend has an Ex-Dividend date of April 21.

Note-A lot of non-US companies pay their entire annual dividend in one chunk instead of making a quarterly payment as US companies do.

I just realized I get to build another spreadsheet.

This one will track results of the game (experiment) on a weekly basis.

[Spock]

The first target that I am shooting for in this project is a cumulative Return on Investment (ROI) of 4%.

This benchmark correlates with a basic 4% annual dividend from a solid dividend paying company with little price appreciation in the stock.

To calculate my first weekly ROI, I included the AT&T data, because I did not want to keep throwing it out and there may be turns that have a higher gain or larger negative loss than the AT&T turn did. It is only fair to include it.

Week 1 ROI is 2.6%.

In later posts, I will discuss my calculation of ROI and why my calculated number is actually going to be some lower than the actual number. Or it will show a greater loss than the real number.

[Spock]

Oops, in describing ROI-I should have said that my targets will be based on cumulative, weighted average Return on Investment.

I love working with weighted averages, so that part will be fun.

Hell, this whole project is fun and I wish I had thought of it this winter when I had to spend on it.

Spring cropwork is fast approaching and it will be a rush because we are late already and we rented a large amount of new cropland for this year.

[Spock]

Lesson learned this week regarding foreign companies with the one annual dividend payment. Unless they are listed on the NYSE, my brokerage firm charges $6.95 to sell them whereas basic stock market trades are commission free. I could not play this game in a firm that was not commission-free.

$6.95 is a lot when we are basically playing in the 1% to 5% of $500 space.

I have been developing a pretty good list of companies to work with as opposed to earlier in the game when I had not developed such sources yet. So early this week, I trimmed off some of the turns I wasn't happy with. Got rid of the European companies and some with dates farther out than I have learned I like to play with.

I am trying to be pretty aggressive in pricing the turns prior to the ex-dividend date. For example, I bought one on Monday with an ex-dividend date of Friday and I priced it to give me a 5% gain and it sold this morning; I will not get the dividend on that one but I got the 5% gain.

I figure I might as well be aggressive on the front end because the firm makes me wait to trade with settled funds and it takes about 3 business days to settle. So I always have some money waiting to settle. If that clears out, I might be less aggressive on the front end so I can start new money in the settlement waiting queue.

I have one turn for which today is the ex-dividend date. I currently have a very small loss going on that one, but I don't plan to eat the loss yet.

I have a pretty big loss going on Williams-Sonoma. That one took a big dump after I bought it-so the day after Ex-Dividend (which is tomorrow) I might as well eat the loss, because I don't think it will come back in the time-frame of the game. Then I can start that money on the settled funds clock.

At this point, I am plus for the week on closed turns which I am very happy with given the list clean-up I did early on this week.

Even with the upcoming Williams Sonoma loss, and assuming no other turns are closed, I should be positive for the week.

[Spock]

I have been thinking about how to structure the game (experiment). I have allotted $6,500 (13 turns)to the game across 2 different accounts which is kind of cumbersome and will not be very clean over time.

I think what I am going to do is allocate another $1,000 to make it $7,500 and have one account just dedicated to the experiment. The math just works better with $7,500. Plus that will give me a solid investment number to base my ROI on.

If I set an initial target ROI at 6.67%, this would give me $500 for another turn and so on.

Given the built-in time delay of waiting for trades to clear-I almost need to have the potential of 15 turns to have 8 or 10 going at one time.

[Spock]

Re-Housecleaning

One of the best things about this project is that even if I stopped it today, I have become aware of several companies that I would like to hold long-term, but of which I was unaware and/or paid little attention to.

I like to hold well-known dividend paying companies. A typical buy that I made just before starting the game is 3M. Basically, I use the dividends from most of the companies I own to buy the requisite number of shares in a new company and then move on to the next company.

I mentioned above that I have been playing the game in 2 accounts and that I plan to simplify that to one account (Account A) so I will shut down the portion of the experiment in Account B and continue to use that for long-term investments.

Account A will only be used for the game and my initial investment is $7,500. Whereas, I have been playing the game with $6,500 between the 2 accounts.

With the stock market having a major down day today, I decided to shut down the "Account B" portion of the game hard and closed all the turns there, most of them at a loss. However, I will use these funds to accumulate shares of Abbvie, which also had a down day, so it was kind of a "Six of one, half dozen of the other" scenario.

For simplicity, I am going to remove Account B results from all ROI calculations and so forth. i am not doing this to mask bad results as Account B had the nice AT&T gain early on.

In order to standardize things from the beginning, I will use $7,500 as the initial investment for calculations instead of the $6,500 as it has been.

This standardizes things and makes it cleaner from the beginning.

My new standardized Return on Investment (ROI) based on closed turns in Account A are

Week 1- 0.52%

Week 2- 0.68%

For a total of 1.2% ROI. A Certificate of Deposit is about a half percent.

At one point, I said 4% was my initial target, but I think I will raise that to 6.67% which is $500 and is equal to a turn.