Dividends
A listed company in South Africa has to issue financial results twice a year, once at financial year end and 6 months later. The company has to release these results within 3 months of the last day of the reporting period.
I am going to use Coronation Fund Managers (CML) in this example.
This Funds financial year end is 30 September which means it has until 30 December to release these results to their shareholders via mail and the broader market via SENS (Stock Exchange News Service). Interim results for the 6 months ending 30 March must be released by 30 June.
This leaves a lot of time between the end of the reporting period to the actual release date. The general rule of thumb is that the “market” will be planning a response to the results way before they are due. A lot of time is spent within institutions projecting expectations and then positioning themselves for the confirmed news.
Knowing this can help us to plan a position in the same manner as the institutions using simple Technical tools to assist with understanding the price action.
When planning for dividend farming, we need to understand the JSE rules as per above and the LDT(last day to trade – the last day on which you can purchase the stock and qualify for the dividend). The decision on timing an entry can be made using moving averages, support and resistance or any other tools you are comfortable with, alongside the LDT.
The day after LDT the share price tends to drop the same amount as the dividend payment. If the dividend is R1 per share, then the share price should drop by R1 a share seeing as the company has now paid out R1 per share to shareholders(R1 per share is removed from the balance sheet) i.e. the market value of the company is reduced by the per share divi payment.
CML’s current Dividend yield is around 5%
On most listed company websites, you should be able to find the last 5 years of financials, which means you can see when the financials were released and then compare those dates and dividend payment values against the share price action before and after the LDT. Then we can plan for the next release date!
Technical trading for dividend payments
For this exercise I am going to apply the same moving averages from the previous releases to analyse price action on CML but from the end of each reporting period.
The Green Arrows/Circles show where the 8 ema crossed the 21 ema. The Blue vertical lines show the month end for each reporting period. We can see straight away that the share price responds up to two months before that date and twice after that date over the two years on this chart. If we apply the 8 crossing above 21 ema, we can use it as a trigger long for 5% on the underlying price or we can use it as an entry trigger to hold until the LDT, this way we won’t qualify for the actual dividend but the share price rise would have netted the same or better return as price moved more than 5% higher each time the ma’s crossed. We could also hold through LDT and gain the dividend plus the capital growth.
Stop loss on this idea would be a 4% drop in the underlying for me – you can
calculate your own stop ideas depending on each individual share price action. Remember to do the back testing before just jumping straight in as not all
companies are equal on this basis.
Thank you for reading my articles, I hope you found them informative and helpful.
I will put a new series together in a few weeks, I have to give the other guys a turn too
Trade well and prosper!
Warren Peacock, Trader