Bad weather hits

Be care­ful what you in­vest in – and when

Finweek English Edition - - MONEYCLINIC - VIC DE KLERK

THINGS AREN’T GO­ING all that well with my div­i­dend farm­ing. Share prices now tend to fall more on the first day fol­low­ing the ex div­i­dend date than the div­i­dend it­self. In short, the spec­u­la­tor/ in­vestor (quite an in­ter­est­ing con­cept, isn’t it?) would’ve been bet­ter off buy­ing the share with­out the div­i­dend on the Mon­day rather than the Fri­day buy­ing that catches the div­i­dend.

But no, my div­i­dend farm­ing is ac­tu­ally do­ing quite well – if you look at it over a longer term than Fri­day to Mon­day.

Read­ers will re­mem­ber that in Finweek of 4 March – which was avail­able from Mon­day, 28 Fe­bru­ary – we strongly rec­om­mended buy­ing Wool­worths shares be­fore the close of trad­ing on 4 March. For most of that week the share traded at around 2600c. The price is cur­rently 2750c and a div­i­dend of 50,50c/share was paid into in­vestors’ ac­counts on 14 March. That’s nice. And our pre­dic­tion of a re­turn of 15% (the div­i­dend and cap­i­tal to­gether) on Wool­worths over the next 13 months looks as if it will be achieved very soon.

But else­where things aren’t go­ing too well, and in the cur­rent weak mar­ket we should per­haps think again about this kind of farm­ing – es­pe­cially if the term is too short. Look at the old big gun Bri­tish Amer­i­can To­bacco. In­vestors who bought the share be­fore 4 March qual­ify for the 935c/share div­i­dend to be paid on 5 May. In the week pre­ced­ing 4 March, the share was trad­ing at around R280. Deduct the div­i­dend and the ef­fec­tive cost price falls to just more than R270 for the div­i­dend farmer. How­ever, BAT is cur­rently trad­ing at only R265. So the div­i­dend farmer ef­fec­tively paid 1500c for a 935c/share div­i­dend. It sounds as bad as or­di­nary farm­ing.

A few other shares did the same thing be­tween Fri­day and Mon­day last week. MTN’s price fell by 457c af­ter a 349c/share div­i­dend. An­glo Amer­i­can’s share price lost 499c af­ter its rather mod­est div­i­dend of 289c. The price of AVI fell even more sharply – by 140c – in ex­change for the div­i­dend of 50c/share. That’s not good busi­ness.

The new listed in­surer – MMI – did slightly bet­ter and its share price fell by only 65c be­tween Fri­day and Mon­day af­ter a div­i­dend of 63c/share.

I burnt my fin­gers – for­tu­nately, only lightly – and there are a few clear lessons to be learned. The cur­rent share mar­ket is too weak for you to try play­ing the Fri­day/ Mon­day cum and ex div­i­dend game. But the view and the steps taken – as in the case of Wool­worths, where the pre­dicted cash div­i­dend re­turn of around 8% over the next 13 months was enough to con­vince the in­vestor to ex­change his de­posit at the bank, where it’s earn­ing 5% – for the div­i­dend are the right ap­proach.

There’s no such thing as day-to-day farm­ing. That’s what some­one hawk­ing veg­eta­bles does. Just like or­di­nary farm­ing with mealies, the div­i­dend farmer has to look at the full sea­son. Try to pick up the three div­i­dends – fi­nal, in­terim and fi­nal again – within 13 months and take the pos­si­ble in­crease in the share price as a bonus.

En­joy your farm­ing. Un­for­tu­nately, there’s noth­ing that caught my eye last week.

JUST LIKE OR­DI­NARY FARM­ING WITH MEALIES, the div­i­dend farmer has to look at the full sea­son

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