Dividends
Shareholders are entitled to a share in a company's profits or earnings. Dividends are a portion of a company's profits paid out to shareholders. Usually, dividends are paid as an amount per share and paid semi-annually. Many investors consider the dividend size as a key component when selecting shares. It is important to note, companies who pay less, or do not pay a dividend, usually see higher capital growth as funds that would be paid out to shareholders as a dividend are re-invested into growing and expanding the company.
Dividend Trades
This involves the purchase of a stock before it goes ex dividend, keeping the dividend payment, then selling the stock once the dividend has been received. In a perfect world, you would you would never profit from this strategy - the stock would fall by the amount the company pays out in dividend distributions. Fortunately the stock market is never perfect - MINC Trading has identified a simple regular pattern in the market where potentially dividends can be stripped out and capital gains maintained generally.
Franking Credits
Franking Credits are the tax paid on dividends and Dividend Stripping can be adapted for clients seeking franking credits, however it is important to consider the 45 holding rule. This requires investors hold shares for a minimum of 45 days in order to be entitled to franking credits.
Dividend Example
XYZ shares are currently trading at $5.00 and are paying a dividend of $0.20 per share in January and another in June. Assuming both dividends are 100% fully franked.
If an investor owns 1000 XYZ shares they will receive $200.00 in dividends + all the tax paid at the company tax rate (currently 30%). Therefore an additional $60.00 in "imputation credits" are received.
In total, dividends received are $260.00
Record Date
The record date is at 5.00pm on the date a company closes the share register to determine the shareholders who will be entitled to receive a dividend.
Ex Dividend Date
The ex dividend date is four days before the company's record date. In order to be entitled to a dividend a shareholder must purchase shares prior to the ex dividend date. Shares cannot be purchased in the match phase on the ex dividend date.
Date Payable
The day a company pays out its dividends to shareholders.
Cum Dividend
The day before the ex dividend date. It is the final day to purchase the shares in order to be entitled to the dividend.
Example of dividend records
Ex Div Date Div Amount Franking Record Date Pay Date
01-Jun-2010 $0.20 100% 05-jun-2010 27-Jun-2010