Friday, September 9, 2011

What is the Dividend 15 split, and how does it work? Pt.3

Yesterday, I talked about one way the 'dividend 15' may generate the very high 10% yields that they offer.

Today, lets look at how a 'dividend smash-and-grab' method would worth, if we calculated with real money.

I will continue to work with BNS (Bank of Nova Scotia) because, gosh-darn, they just work so well with this strategy (as many of the other stocks that the 'Dividend 15' say they invest in).

For example, BNS yields dividends quarterly. At the current yield they are at 4% for the year, so approx 1% per quarter. This is a decent yield, especially for a Canadian Bank, which many believe to be essentially bullet-proof.

The most recent dividend was July 27, with an Ex-dividend date of July 5. This means that you only had to hold the stock for ~3 weeks to get a 1% return. Not bad at all.
Wow Jack, 1% in a month? Count me in!

You and me both.
Say you were a stock fund manager. You had a number of big companies all paying an average 4% yield, quarterly. You only had to hold the stock for a month (the ex-dividend date) to get the sweet dividend.

If you moved the money around, jumping from dividend to dividend, you could do pretty good, right?

There are 12 months in a year, and even if you could only effectively get 11 of these yields, you would average about 11%, minus commissions and trading fees.

This is actually not that far from what 'Dividend 15' yields out.

So can I dividend speculate with $1000?

In short, No.

But maybe you could try with $10000.

Lets say we wanted to speculate BNS's dividend.

1) We invest $10000 in BNS, buying about 192 shares at $52/share before the ex-dividend date.
2) We wait the 3 weeks, and receive a dividend deposit of ~$100 in our brokerage account.
3) We immediately sell the stock, netting approximately the same value back (lets assume it was a smooth-market month, and the dividend depreciation was negligible.)
4) We now add up our booty:

Commissions & Trading Fees (for Credential Direct): ~($40)
Profit from Dividend: ~$100
Total: ~$60.

So, you profited about $60 on $10,000, or 0.6% for a month. Not too shabby.

If you were to invest $1000, you would have netted ~($30), and only made out with ~$9970 of your initial investment.

So if I speculate Dividends I can make 11% a year?

Still a No.

This assumes that the stock will have exactly the same value on the purchase and the sale. I can almost guarantee this would not happen. 

Yes, it may make money due to unrelated capital gains, but since dividends are paid directly from the market value of a stock, it's unlikely that you'll make back exactly the same value as before.

Tomorrow, I'll talk about why I wouldn't invest in the 'Dividend 15'.

No comments:

Post a Comment