Thursday, August 30, 2012

UPCOMING LAST TO DAY TRADE FOR DIVIDENDS


Tomorrow marks the Last Day Trade for some some shares listed on the JSE. What this means is that if you want to earn any of the dividends listed below, you will have to make sure that you own the share by the time the market closes tomorrow.


Shares going Last Day Trade on 31-Aug

Share code



Share name



Dividend / interest rate
ABSP
ABSA Bank Ltd Prefs
dividend @ 3134.7cps
AFE
AECI Ltd
dividend @ 78cps
ARH
ARB Holdings Ltd
dividend @ 13.7cps
ASA
ABSA Group Ltd
dividend @ 315cps
BIL
BHP Billiton Plc
dividend TBA by 31/08/12
CLI
Clientele Ltd
dividend @ 67cps
CULP
Cullinan Hldgs Ltd
dividend @ 5.5cps
FFA
Fortress Income Fund Ltd
interest @ 53.34cpu
FFB
Fortress Income Fund Ltd
interest @ 9.95cpu
NED
Nedbank Group Ltd
dividend @ 340cps
RAR
Rare Hldgs Ltd
Rights Offer 232.01856 : 100 @ 8cps
SBKP
Standard Bank Group Ltd Prefs
dividend @ 3.25cps
SBPP
Standard Bank Group Ltd Prefs
dividend @ 345.55cps
TRU
Truworths Int Ltd
dividend @ 157cps  

You are then welcome to sell them again on Monday because if you are the beneficial owner at the close of business on LTD (being tomorrow in this case) the dividend is paid to you on payment date. However I would suggest waiting a week or two as on Monday (or Ex Div Day) they will more than likely fall by the same amount as what the dividend they will be paying out. So rather sell them once they are at break even or slightly above, which usually takes about a week or so, and then you would have successfully farmed a dividend. 

2 comments:

  1. Hi Petri,

    What are your views on the tax implications involved here?

    I have found no guidance in the income tax act regarding the treatment in a trading portfolio for this.

    In essence you are stripping the dividend (tax free) and then gaining the taxable loss benefit of selling at Ex Div lows as well. So tax free income, tax deductible loss.

    Cheers


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  2. Hi Justin,

    That is correct, yes. Although the idea is really to sell the share again once it has closed the gap it formed on ex-div day. So for example, if the share is trading at R100 on LTD and pays a R1 dividend, then on ex-div day it should fall to R99. Once the price has moved back up to R100, then you sell the share at break even and earn the dividend.

    Naturally one has to take brokerage into account, so you might want to sell it at R100.80 so that you truly break even in terms of 'all in costs'.

    Then, you are charged 15% dividend tax on the earnings from the dividend. This is usually deducted at broker level, so the broker would receive the R1, pay 15 cents to the tax man and pay 85 cents to you.

    A nice rule of thumb is that if you hold a share for 2 years or more before realising a profit from it (ie. you sell for profit), you pay capital gains tax. If you realise a profit from it before this 2 year period is up, then you pay income tax. Except in the case of dividends where the 15% tax rate applies.

    I'd say that 85-95% of the time, the share price recovers from the loss it had on ex-div day. So this would be a fairly low risk way of making profits that are not as heavily taxed as normal share price gains or trading profits.

    Please note that I am not a tax practitioner and therefore my word should not be seen as golden here. The way I see it is that I don't mind paying tax because it means I'm making money.

    Also, a worthy note is that the idea behind a dividend stripping portfolio is to beat the returns earned on cash deposits with a similar risk profile. So if you are earning 5% on cash, then you aim to make 5%+ on your dividend stripping portfolio.

    I hope this answered your question.

    Regards,

    Petri

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