No longer really profitable
But dividends are dividends and are safe in the bank
THE PRICE performance of British American Tobacco and Remgro on Monday, 16 August, when both these shares were exdividend, unfortunately shows that even this kind of farming is no longer what it was. Our current very alert Receiver of Revenue doesn’t like this kind of farming either. He will penalise you heavily if you’re caught.
But let’s begin at the beginning. Many listed companies pay dividends. Some of them twice a year, an interim and a final dividend, and others pay only a final dividend. It’s actually these shares, which pay only one dividend a year, sometimes 5% or perhaps even more of the ruling share price, that offer the best opportunity for dividend farming.
Dividend farming can be very quick, like two business days, or sometimes slightly longer, usually about six weeks. And then there’s the 13-month approach, which I rather like myself.
For novices: understand how dates work around dividends. Take Remgro for the past two months. On 24 June, when it issued its financial results, the company declared a final dividend of 125c/share payable on 23 August. To ensure that the right shareholders receive the dividend, the company stipulated that all those who held shares at the close of business at the JSE on Friday, 13 August, would receive the dividend. In other words: that would be the last day of trading before the books closed.
The very short-term dividend farmer would therefore buy a good lot of shares on Friday, 13 August. In the case of Remgro, the price was 9885c/share. An investor who bought Remgro shares on Monday, 16 August, would no longer qualify for the final dividend of 125c. In a normal market environment, Remgro’s share price would of course fall by the 125c dividend between Friday and Monday.
That’s in a normal market. Sometimes, if things are going well on the markets, especially in those times when the gold price happily soared $30 or more in a day, the share price would not fall between the cum (the Friday) and the ex (Monday) days – and then the dividend farmer would be smiling broadly.
However, even if the price falls