![]() This drop happens because a dividend payout automatically reduces the value of the company and the investor would have to absorb that reduction in value as neither the buyer nor the seller are eligible for the dividend. After the date, when the companys shares are trading ex-dividend, in theory the share price drops back by the amount of the dividend. This is because of buying interest from investors wanting to hold the shares on the ex-dividend date and thus qualify for the payment. Now when a company issues a dividend, there are several expected actions.įirst, shares often rally in anticipation of the dividend to be issued, so in the last couple of weeks before the announcement, the price will rise. When the shares go ex-dividend, the shareholders no longer qualify to get the dividend, which is usually issued a few weeks later so a company’s share price will usually fall to account for the cash bound for investor’s pockets (and leaving the balance sheet). The way it works is that the trader buys the shares before they go ‘ex-dividend’. ![]() One of these strategies is known in the hedge fund industry as dividend stripping or dividend play, and in some cases using CFDs can make all the difference between a marginal profit and a gain worth making.Īctive share traders have traditionally done dividend stripping by buying the equities. The great thing about contracts for difference is that many of the strategies that have been developed over the years for share trading can be used with CFDs, and cost a lot less because of the leveraging of your money. This sounds much more attractive, huh? But this theory has one flaw granted you will stand to receive a 52.5% return in cash on dividend paying day but in reality the share will drop by the amount of the dividend on the ex-dividend date, losing 52.5% of the margin requirement for a zero end return. This is not really a huge return on investment but what if you could use leverage to gear your position up to 15 times using CFDs? The return now soars to 52.5% on the margin money utilised. If an enterprise pays a yearly dividend of, say, 7 per cent they will usually make two payments of approximately 3.5% per dividend. The idea of trading for dividends is not by any means new. Dividends stripping revolves around buying shares prior to the dividend being paid and selling those shares just after that payment. There are a number of trading strategies CFD traders can use over dividend periods and one of these strategies is referred to as dividend stripping.
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |