Sunday, 28 June 2020

(Post 179/Year 3 week 38)Learning investing/trading together part 25:Pre-Dividend capture strategy method(legit or not?)

*For more information on Pre-dividend capture strategy method, you can refer to/download this book

This week post we will focus on a trading method known as Pre-Dividend capture strategy method(Not exactly sure if there is another name for such strategy though)

What is "Ex-Dividend"?
  • A trading term that specifies when a declared dividend is owned by the seller rather than the buyer
  • For example, the ex-dividend date for the stock DBS(D05) as shown below is 2018-08-08
  • This means that if you own the stock on 2018-08-08 aka Aug 8, 2018, you will be entitled to the dividend also known as cash dividend 
  • Dividend or Cash dividend: A cash dividend is a money paid to stockholders, normally out of the corporation's current earnings or accumulated profits. Not all companies pay a dividend though)
  • A common misconception is that you must own the stock until after the ex-dividend dates to be entitled to the dividend 
  • In DBS(D05) case, most people thought that you have to hold until after the Ex-dividend date before you can sell it, which is one day after the Ex-dividend date(Aug 9, 2018)

So,what is this Pre-Dividend capture strategy method?
  • The key date to remember is 10 trading days prior to the day before EX-DATE(circle in red), in this sample of STI ETF(ES3) the date would be (circle in black)
  • You buy the stock 10 trading day prior to the day before the Ex-dividend date and sell it on the day on before the ex-dividend date
  • Win or lose,you just follow the rules of buying 10 day prior to the day before the Ex-dividend date and sell it on the day before the ex-dividend date (Anyone that tell you that a trading strategy is a sure win, is a liar.)
  • This strategy here has been historically 75 to 85% successful as the author state, which means he lose somewhere between 2 to 3 out of every 10-15 trades him make.
Let show's some historical data from STI ETF(ES3) to see if its really work as he stated,will be using the previous 10 ex dividend dates to compare 

Since each year,es3 will have two ex-dividend date(Jan and July),the data used will be from 2015-2019

All data taken from yahoo finance:credits to yahoo finance

I will be using the data of the opening price to see if this strategy really work.



  • 22 Jul 2019(10 trading day prior to the day before ex dividend date:3.4300
    02 Aug 2019 (1 trading day before ex dividend):3.3500
  • Result:Loss



  • 21 Jan 2019(10 trading day prior to the day before ex dividend date:3.2800
    01 Feb 2019 (1 trading day before ex dividend):3.2490
  • Result:Loss


  • 19 Jul 2018(10 trading day prior to the day before ex dividend date:3.3030
    01 aug 2018 (day before ex dividend):3.3910
  • Result:Win



  • 18 jan 2018:3.60
    31 jan 2018:3.60
  • Result:draw or loss (if you consider transaction fees  too)

  • 14 Jul 2017(10 trading day prior to the day before ex dividend date:3.2900
  • 27 Jul 2017(day before ex dividend):3.3800
  • Result:Win


  • Prices does not include commission or other data for simplicity sake
  • 18 Jan 2017(10 trading day prior to the day before ex dividend date:3.0600
  • 01 Feb 2017(day before ex dividend):3.1100
  • Result:Win


  • 15 Jul 2016(10 trading day prior to the day before ex dividend date:2.9700
  • 28 Jul 2016(day before ex dividend):2.9900
  • Result:Win
  • 15 Jan 2016(10 trading day prior to the day before ex dividend date:2.7200
  • 28 Jan 2016(day before ex dividend):2.6100
  • Result:Loss

  • 16 Jul 2015(10 trading day prior to the day before ex dividend date:3.3900
  • 28 Jul 2015(day before ex dividend):3.3500
  • Result:Loss

  • 16 Jan 2015(10 trading day prior to the day before ex dividend date:3.3800
  • 29 Jan 2015(day before ex dividend):3.4600
  • Result:Win
As you can see from the result,we have
  • Win:5
  • loss: 4
  • draw:1
So 5 out of 10 wins, about 50% chance

If we were to include commission, I would probably suggest a range from $5000-$10,000 to trade to see any decent profit

Using Jan 2015 e.g 

BUY


SELL

PROFIT

  • $5.177.08- $5,082.87=$94.21
Conclusion
  • Circumstance may change as we are using Singapore stock instead of US stock
  • Another consideration would be applying this strategy to a normal stock instead of an ETF
Hope this article gives you an insight into trading strategies!

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