No longer re­ally profitable

But div­i­dends are div­i­dends and are safe in the bank

Finweek English Edition - - Insight -

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

Newspapers in English

Newspapers from South Africa

© PressReader. All rights reserved.