Trading shares or CFDs on financial markets can lead to discovering many exciting investment strategies. Some investors are primarily interested in day trading and trying to benefit from short-term intraday price movement of shares. Others prefer to take a longer view of the markets and invest in companies that are expected to bring them steady and predictable returns through regular payment of dividends, making ownership of shares a type of rent-seeking strategy. There are advantages and disadvantages to both approaches, and an intelligent investor will try to optimise their market portfolio in a way that is suitable and appropriate for their investment goals. Typically, dividend investment is associated with a very long-term ownership of shares, and such investors prefer to buy and hold stock for extended periods of time in order to regularly receive dividend payments from the company. This type of approach can bring stability of a regular income, but, at the same time, opens investors to market risk, forcing them to hold assets whose price can go up and down with general market sentiment. However, there are ways to combine tactical day trading with the longer-term strategic dividend approach into an investment method called a dividend play. This strategy utilises knowledge of dividend cut-off and payout dates to buy and sell securities in short targeted bursts. Here at Accendo Markets, our goal is to help our clients realise their full potential on financial markets, and we are looking to examine the dividend play phenomenon in order to demonstrate how in-depth knowledge of the markets can create regular investment opportunities. Playing the Market How does a dividend play work? Mainly it involves understanding how companies pay out dividends. Every shareholder is entitled to receive a dividend (if the company pays them out), as long as they purchased the security prior to a cut-off date called ex-dividend date (or ex-div). Both direct shareholders as well investors who purchased CFDs can receive dividends, with the key difference being that owners of CFDs are paid dividends on the ex-dividend date, while owners of shares are typically paid several weeks later. In a perfect-world scenario, the value of the equity should decrease on the ex-dividend date by the amount of the dividend that was paid out, to compensate for the transfer of liquid assets away from the company. This research is produced by Accendo Markets Limited. Research produced and disseminated by Accendo Markets is classified as non-independent research and is therefore a marketing communication. This investment research has not been prepared in accordance with legal requirements designed to promote its independence and it is not subject to the prohibition on dealing ahead of the dissemination of investment research. This research does not constitute a personal recommendation or offer to enter into a transaction or an investment and is produced and distributed for information purposes only. Accendo Markets considers opinions and information contained within the research to be valid when published and gives no warranty as to the investments referred to in this material. The income from the investments referred to may go down as well as up, and investors may realise losses on investments. The past performance of a particular investment is not necessarily a guide to its future performance. Prepared by Michael van Dulken, Head of Research. Accendo Markets Ltd is Authorised and Regulated by the Financial Conduct Authority (FCA) No. 475285. We offer CFD, Spread Bet and FX Trading Services. Accendo Markets Ltd, Registered in England and Wales No. 6417051. Registered Office: 1 Alie Street, London, E1 8DE, +44 (0) 20 3051 7461
However, because financial markets are not perfectly efficient, sometimes the share price will decrease by less than the full amount of the dividend (or, sometimes, by more) due to other commercial and market factors. This creates an arbitrage opportunity that we call a dividend play. The key to a dividend play is to spot the moment when the share price to expected to decrease less than the amount of the dividend (or to quickly recover to original levels) and to capture the difference as profit. An investor can purchase CFDs before the ex-dividend date, receive the value of the dividend, then hold the shares for a short duration while their value recovers. After a few days, they will sell the shares and earn both the value of the dividend as well as the difference between prices when they bought and sold the security. To benefit from a dividend play, investors can hold both long and short positions, with the difference being that in case of a long position, the value of the dividend is credited to their account, while in case of a short position, the value of the dividend is taken out of their account. Mastering the Research Sounds simple enough? dividend plays can be a very straight-forward investment strategy, but to truly master this approach, an intelligent investor will be looking for an edge over other market participants. This edge can lie in understanding when ex-dividend dates occur, how the value of the dividend is calculated, how quickly the shares recover and which companies offer the best targets for dividend plays. DISCLAIMER: Please remember that past performance may not be indicative of future results Here is a sample of select FTSE 100 companies that have recently paid out dividends or will pay them out shortly, with the key metrics that can help an intelligent investor take advantage of dividend play opportunities. The examined dataset spans a 10-year period from May 2008 to May 2018 and studies the average number of days that it takes for a share price to recover after an ex-dividend date to bring the investor into a net profitable position ( in the money ) With hundreds of companies trading on the London Stock Exchanges, comprehensive in-depth research into dividend plays can be a daunting proposition, which is why Accendo Markets specialises in providing an investment support structure for our clients to help them understand the market and spot potential dividend play opportunities long before they emerge. Please contact us for a full breakdown of the data.
Ex-dividends, 26 April 2018 Petrofac (PFC) Petrofac shares went ex-dividend on 26 April 2018 Dividend per share was equal to 18.52p Shares recovered the same day, holders gaining net 17.52p per share (inclusive of dividend) Historically, Petrofac paid out 17 dividends between May 2008 and May 2018 Average recovery time until break-even point was equal to 2.24 days
Ex-dividends, 26 April 2018 William Hill (WMH) William Hill shares went ex-dividend on 26 April 2018 Dividend per share was equal to 8.94p Shares recovered the same day, holders gaining net 6.84p per share (inclusive of dividend) Historically, William Hill paid out 19 dividends between May 2008 and May 2018 Average recovery time until break-even point was equal to 3.68 days
Ex-dividends, 3 May 2018 G4S (GFS) G4S shares went ex-dividend on 3 May 2018 Dividend per share was equal to 6.11p Shares recovered the next day, holders gaining net 1.21p per share (inclusive of dividend) Historically, G4S paid out 17 dividends between May 2008 and May 2018 Average recovery time until break-even point was equal to 1.58 days
Ex-dividends, 3 May 2018 Unilever (ULVR) Unilever shares went ex-dividend on 3 May 2018 Dividend per share was equal to 33.41p Shares recovered the next day, holders gaining net 26p per share (inclusive of dividend) Recovery further aided by rollout of a 6B share buyback plan, commencing 8 May 2018 Historically, Unilever paid out 33 dividends between May 2008 and May 2018 Average recovery time until break-even point was equal to 3.58 days
Ex-dividends, 10 May 2018 GlaxoSmithKline (GSK) GlaxoSmithKline shares went ex-dividend on 10 May 2018 Dividend per share was equal to 19p Historically, GlaxoSmithKline paid out 37 dividends between May 2008 and May 2018 Average historical recovery time until break-even point was equal to 3.65 days Will GSK shares quickly recover within a similar short timeframe? Or will we see a more prolonged period of share price recovery?
Ex-dividends, 10 May 2018 BP (BP) BP shares went ex-dividend on 10 May 2018 Dividend per share was equal to 7.13p Historically, BP paid out 27 dividends between May 2008 and May 2018 Average historical recovery time until break-even point was equal to 3.67 days Will BP shares take their time before recouping the dividend? Or will we see a quick comeback in the money for ex-dividend players?
Potential Future plays In the following weeks, several other FTSE 100 shares will be going ex-dividend. Here s a sample selection of several potential dividend plays and how these particular shares performed during the previous dividend period. Tesco will be going ex-dividend on 17 May 2018, with a 2p/share dividend pay-out Previous time Tesco went ex-dividend was on 12 October 2017 (1p/share) It took Tesco shares 7 days to fully recoup the losses and come back into money Historically, Tesco paid out 13 dividends between May 2008 and May 2018 Average historical recovery time until break-even point was equal to 2.38 days Tesco (TSCO), 12 Oct 2017 ex-div Reaction Morrisons (MRW), 28 Sept 2017 ex-div Reaction Morrisons will be going ex-dividend on 24 May 2018 Company will issue a combination of Final (4.43p/share) and Special (4p/share) dividends Previous time Morrisons went ex-dividend was on 28 September 2017 (1.66p/share) Morrisons shares recouped the losses (inclusive of dividend) the same day Historically, Morrisons paid out 15 dividends between May 2008 and May 2018 Average historical recovery time until break-even point was equal to 2.07 days
Another example of a potential future dividend play is Whitbread Whitbread will be going ex-dividend on 24 May 2018 (69.75p/share) Previous time Whitbread went ex-dividend was on 9 November 2017 (@ 31.4p/share) Whitbread shares recouped the losses (inclusive of dividend) the same day Historically, Whitbread paid out 18 dividends between May 2008 and May 2018 Average historical recovery time until break-even point was equal to 2.5 days Carnival (CCL), 22 Feb 2018 ex-div Reaction Whitbread (WTB), 9 Nov 2017 ex-div Reaction Dividend plays are not always a successful short-term strategy The previous time Carnival (CCL) has gone ex-dividend was on 22 February 2018 (at 32.734p/share) Shares did not manage to fully recoup ex-dividend day losses and the dividend play never came back into money Overall, Carnival paid out 15 dividends between May 2008 and May 2018, with an average historical break-even point at 2.84 days Like Morrisons and Whitbread, Carnival will be going ex-dividend next time on 24 May 2018 To take full advantage of potential dividend play opportunities, it is essential to equip yourself with a cutting edge analytical support structure. Every week here at Accendo Markets, we prepare a Week in Advance research publication that keeps our clients informed about the most important events of the upcoming days, major corporate results, macroeconomic news and next week s FTSE ex-dividends data. Our FTSE ex-dividends research publication is then updated throughout the week to make sure our clients have the most up to date information regarding the yield and schedule for that dividend payment, enabling them to make informed investment decisions. You can click here to sign-up to Accendo Markets Research & Trade Ideas to get access to Week in Advance and our other research publications.
Want to take advantage of the above opportunities right now? Whether you see UK stocks going up or down for the remainder of the year, tradable opportunities will arise regularly. We re here to help you weed them out and capitalise on them. Accendo Markets can help you increase your profit potential with the use of leveraged instruments such as CFDs, a flexible alternative to traditional shares that is currently exempt from UK stamp duty. CFDs: Like shares, but more flexible While buying 15,649 shares in Lloyds Banking @ 63.90p requires an outlay of around 10,000 plus commission, the same exposure via a CFD requires about 500 plus commission (see right-hand box; margin + costs). If a trader invests in Lloyds Banking, one would assume they believe the share price is likely to move in their favour. After considering the worst case scenario and assigning funds to cover it, the trader may conclude there s little point in exposing the full 10,000 to Lloyds Banking shares - some of that capital could be put to good use elsewhere in the markets. (Source: CMC, Prices indicative) CFDs are leveraged instruments, but you don t have to use leverage If you had, say, 10,000 to invest in the stock market, you could deposit that amount into a share dealing account and purchase shares in a company. You would pay commission to open the position, 0.5% in stamp duty and the full 10,000 will be tied up in your chosen shares with any profit or loss based on that exposure. The same 10,000 worth of exposure can be secured with a CFD for a fraction of the initial outlay thanks to leverage, with the risk and reward the same as if 10,000 worth of traditional shares were held. But should you not be interested in leverage, you can always treat CFDs like shares. Simply deposit 10,000 into a CFD trading account and take the equivalent CFD position which will tie up as little as 3%/ 300 (note that overnight financing costs will still apply). The remaining 9,700 is not tied up, so you can use some of that to take advantage of another short-term opportunity elsewhere, or simply leave it on the account to support any losses. Best of all, using a CFD means you pay no stamp duty! What s your view? Think shares will rise? Take a long position by buying CFDs (buy low, aiming to sell high). Think they ll fall? Take a short position by selling CFDs (sell high, aiming to buy low). For a more detailed rundown of CFDs, their mechanics, associated costs and some trading scenarios download our Comprehensive Guide to CFDs here.
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FTSE Ex-dividends: Share Price Recovery (page added 15 May 2018) (Source: Accendo Markets, AlphaTerminal, LSE) Tables include all FTSE100 dividends over last 3 weeks. Tables include only select FTSE250 dividends Line in each table distinguishes FTSE100 dividends (above) from select FTSE250 dividends (below)