CFD's and Dividends

[dwaddell]

Hello,

I've been reading up a bit on CFD's and like the aspect of receiving the dividend on a long position.

A question, which I cant seem to find the answer to: is there a qualifying period of how long you must hold the CFD to receive the dividend?

From what I understand, there isnt, just wanted to check with you guys.

Any comments on who to use for CFD's - IG Markets or CMC?

Also, how long after announcement of results is a dividend usually paid.

Surely a 10,000 share margined position for a 20p per share dividend is worth holding for a week...?

Or have I missed the point completely?

Cheers

 

[dazzam]

You will need to hold the dividend prior to the Ex Div date

 

[JungleJim]

Dear DWaddell,

The date a share goes Ex-dividend is not the same date as the Results Announcement. If you look down the Results for a heading marked Dividend it will tell you when the share goes Ex-Div and when the div will be paid. As long as you hold the share on the date the share goes Ex-div you can still sell the share and receive the div. For example, the Results may say something like:

All shareholders holding shares on the 12 December 2003 will received a dividend payment on 12 January 2004.

So if you hold your shares on the 12 December and then sell them 15 December you will still get the divs paid to you on the 12 January 2004. I hope this explains how it works.

 

[fastnet]

On a similar subject (and arguably more about investing than trading):

finance theory dictates that a share price will fall by the same amount as the awarded dividend on the ex-div date. Although I am sure that this is the case has there been any research on how long a share price takes to return to the cum-div price?

Of course the intention would be to move significant blocks of money into high-yielding cum dividend shares then, after the ex-dividend date wait until the share price has risen again before moving on to next target.

You'd probably want to restrict this activity to companies in stable sectors with predictable cash flow - privatised utilities for example -

Anyone anything to add - this is the extend of my thoughts at the moment - the idea only occurred to me this morning. . .

Thanks and regards

 

[BlueChip Trader]

Hi Waddell,

I use ExD as a profitable strategy. This is how it works for CFD's.

It depends how you came in with your position on the ExD date.
i.e. if you were long you get paid the dividend and if you were short then you pay the dividend to your CFD provider.

I tend to go long about 4/5days before the ExD date to benefit from the subsequent rise in price and short the stock on open on the ExD date to benefit from subsequent fall in price which normally equals the dividend amount.

I get my ExD dates from www.investorease.com

IHTH

 

[dwaddell]

Hi BlueChip,

yes, that's exactly what I was getting at, but wasnt sure about the technicalities...so I can go long a few days before and pocket the dividend on the exdiv date...how far into the exdivdate do you then short your position - prior to the open or at the open? Do the CFD's not change their quote in advance or does it stay valid till the open and not get discounted till later?

cheers

 

[BlueChip Trader]

Hi Dwaddell,

If you open a long position say in the last minute before close on day before the ExD day, you would qualify for the dividend.

You go short after the open. If you were short prior to the open, you would end up paying the dividend amount to your CFD provider.

The stock would be marked down at the open and may continue to go lower. This would depend on the general market conditions.
On occasions I have reversed my short position and went long again, the stock regaining all it had lost earlier in the day.

I only use this strategy for FTSE 100 stocks paying at least 10p or more.

 

[fastnet]

Hi Blue Chip Trader -

I read your post with interest. Could a long run benefit be derived from such a strategy? It it were this would indicate a market inefficiency . . . . these do exist but this one seems a little too easy to exploit?

I have been having a look at some FTSE 100 stocks. As you say they do tend to rise up before the ex-div date then fall by this amount once the deadline is passed. Recovery to pre-ex-div date (if that makes sense??) prices seems a little more erratic.

Could this strategy be a net winner in the long rum focusing in big FTSE constituents?

Anyone any comments?

Cheers

 

[SanMiguel]

Don't the pre market conditions effectively wipe out any hedge potential here?
If you open a short the next day, the market will already be lower...

 

[GumRai]

Don't the pre market conditions effectively wipe out any hedge potential here?
If you open a short the next day, the market will already be lower...

I don't know if you noticed that this is a very old thread SanMiguel.

I wasn't trading CFD's back in 2003, but some of the info that was posted then doesn't seem accurate to me. I can only use my experience of the last 5 years and trading with CMC.
The ex-dividend date is not always the same as the results date.
If you actually own the shares, you have to wait for the dividend payment date to receive the dividend. With CFDs you are credited with the dividend amount on the ex-dividend date (if you are long). Obviously, debited if short.
A share that pays a 20 pence dividend will open 20 pence lower on the ex-div date (+ or - any normal market moves). There is usually no benefit in buying the day before and selling the next.