The dividend shuffle game?

[ken-do-nim]

I just read about this technique somewhere in a yahoo conversation, and it blew my mind.  ORC is a monthly paying dividend stock, arguably the highest percentage one there is.  NLY is a quarterly paying dividend stock, arguably the highest quarterly percentage one there is.  So some people are holding ORC for a couple months to get the dividend, then sell and buy NLY to get its dividend, then back to ORC, so that they pick up both the ORC and NLY dividends with the same money.  

There must be a catch to this!

Let's take it to a logical extreme.  Let's say you get a chart of all the ex-div dates in the market.  Every day you sell what you had been in, the day of its ex-div date, and you buy another whose ex-div date is the following day.  So theoretically, with the same cash, you could qualify for something like 250 dividends a year.

I mean, just looking at my ETrade account ...



So let's say I have $10,000 and it was invested in NLY on 3/30/2021.  On April 4th, I sell NLY and buy CSCO.  On April 6th, I sell CSCO and buy ORCL.  On April 7th, I sell ORCL and buy T.  On April 8th, I sell T and buy PFL. Etc. 

If this was doable, I'm sure everyone would be doing it, and it would have been discussed on this forum already.  Is the problem that stocks tend to go down on the ex-div date, so that this would make you lose your principal over time?

[fenders53]

I gotta go to work and design expensive doors for all you rich HD stockholders but good thread topic I will participate in later.

[divmenow]

Choppy market still means HD goes to $300 lol and stocks still run up. We need a correction of a significant pullback to match the earnings growth the S&P is expected. Most companies can’t even give guidance still. So we have no idea what that’s going to look like going forward. Any kind of significant miss and stocks will get hit. In fact when if they beat slightly they may get whacked. It’s priced for perfection right now



I don’t know when if will happen. Cant time and don’t call myself an expert but I can say we are way over do. Raising corporate taxes, rate hikes, lots of people are still out of work because they all make more sitting at home will have an affect on the econmy eventually.

We now face the risk that corporate taxes may rise again. We know that President Biden wants to hike corporate taxes to 28%, set a minimum 15% rate on companies' “book income,” and also double the current tax rate on international profits to 21%.
Essentially, this plan would reverse tax cuts of the Trump Administration, which richly rewarded investors over the past few years. Just something to keep an eye on.

Also the 10 year treasury is at an all time high now at 1.55%. It has increased from 0.9% since Jan. That’s a significant move. We’re ok for now but once it climbs above 2-2.5 we may have a slowdown.

We need panic to set in lol. Come on I need a big correction to buy back lol

Who knows maybe I will buy something today ?

[Binary]

(04-16-2021, 06:52 AM)ken-do-nim Wrote: I just read about this technique somewhere in a yahoo conversation, and it blew my mind.  ORC is a monthly paying dividend stock, arguably the highest percentage one there is.  NLY is a quarterly paying dividend stock, arguably the highest quarterly percentage one there is.  So some people are holding ORC for a couple months to get the dividend, then sell and buy NLY to get its dividend, then back to ORC, so that they pick up both the ORC and NLY dividends with the same money.  

There must be a catch to this!

Let's take it to a logical extreme.  Let's say you get a chart of all the ex-div dates in the market.  Every day you sell what you had been in, the day of its ex-div date, and you buy another whose ex-div date is the following day.  So theoretically, with the same cash, you could qualify for something like 250 dividends a year.

I mean, just looking at my ETrade account ...



So let's say I have $10,000 and it was invested in NLY on 3/30/2021.  On April 4th, I sell NLY and buy CSCO.  On April 6th, I sell CSCO and buy ORCL.  On April 7th, I sell ORCL and buy T.  On April 8th, I sell T and buy PFL. Etc. 

If this was doable, I'm sure everyone would be doing it, and it would have been discussed on this forum already.  Is the problem that stocks tend to go down on the ex-div date, so that this would make you lose your principal over time?

Although I did not do big research on this, I noticed that typical div paying stock fall on the ex-div date. So maybe the trap here is that you buy the stock before the ex-div, it falls on ex-div just as much as the div is and then you are nowehere?
I checked once with T in retrospect if the strategy above would make sense, and I have to admit that I only looked at 2-3 ex-div dates, the outcome was a "nah, too much risk for almost no return".

[ken-do-nim]

(04-16-2021, 07:21 AM)Binary Wrote: Although I did not do big research on this, I noticed that typical div paying stock fall on the ex-div date. So maybe the trap here is that you buy the stock before the ex-div, it falls on ex-div just as much as the div is and then you are nowehere?
I checked once with T in retrospect if the strategy above would make sense, and I have to admit that I only looked at 2-3 ex-div dates, the outcome was a "nah, too much risk for almost no return".

I did note that the people who I got the idea from were not selling on ex-div dates.  They were holding ORC most of the year, switching to NLY for its dividend, then they have the luxury of like 2 weeks to sell it and get back into ORC for its next monthly ex-div date.  

I'm considering taking $2000 in my ROTH and trying this out for a few months.  You know, for science.

[crimsonghost747]

you can always try.
But in reality what you are doing here is two trades.
#1 You are letting go of ORC for about 2 weeks.
#2 And you are buying NLY, grabbing the div, and then selling.

The success of #1 is entirely dependent on ORC's price movement in that time. So essentially it's timing the market. (hard!)
The success of #2 is purely dependent on betting that it will recover from the dividend dip in about two weeks. The stock WILL dip roughly the amount of the dividend on the ex-div date.

Essentially, what you are doing here is getting rid of ORC to get money and then betting that money on the fact that NLY will go back up after the ex-dividend date. Just remember that it's not a certainty that it goes up. I would suggest that if you want to do this, just use extra cash on NLY. Or even a paper trading account. And just forget about selling ORC for the moment. Make sure you can trade NLY first, then decide where to get the cash to do so.

[ken-do-nim]

I found an article on this strategy. https://www.investopedia.com/articles/st...rategy.asp So, it's a real thing Day Traders do. I'll have to read the article when I get more time.

It seems like if nothing else it would provide entertainment value in trying to pull this off.

[stockguru]

Decided to buy some CVX and a new position in RCL

[Otter]

If you do this, do it in an IRA rather than a taxable brokerage account.

To be a "qualified dividend" for purposes of advantageous tax treatment, a holding period prior to the ex-dividend date is involved.

[ken-do-nim]

(04-16-2021, 10:45 AM)Otter Wrote: If you do this, do it in an IRA rather than a taxable brokerage account.

To be a "qualified dividend" for purposes of advantageous tax treatment, a holding period prior to the ex-dividend date is involved.

Oh yes absolutely.

Here are my initial thoughts:
1) Identify companies that pay annual or semi-annual dividends, because dropping in for 2 days of ownership on those will have the biggest bang for its buck.  RIO in my portfolio is the best example; it pays a really large dividend twice a year.
2) I can start studying the 6 monthly payers I have: ORC, OXLC, RA, PCI, PFL, and HRZN.  What is the spread of their ex-div dates, and what happens to their price typically on the day of the ex-div and after.
3) Then I put together a schedule involving the monthlies, the quarterlies, and the semi-annuals.
4) Free up some cash in my IRA and try this for 3 months, then report back.

[fenders53]

Apply for a level three option trading permission. Tell them you are being mentored by the finest option trader in the country. And if that guy is busy lol I will show you how to snipe dividends with some option premium on the side. You gotta pick your spots but it works pretty good.

As far as normal dancing in and out of positions with long shares. Sometimes you can escape quickly, sometimes the stock price stays down Ex-Div. The higher the Div, the more likely it does in my experience. NLY is one of those stocks that would likely be tougher than average.

[ken-do-nim]

Been doing some research. With regards to the highest quarterly dividend payer, I've come across MVO MV Oil Trust. It pays a whopping 17.25%.

It went Ex-Div April 14th. Relevant end-of-day prices:
April 9th: $5.44
April 12th: $5.58
April 13th: $5.60 (last day to own to qualify for the dividend)
April 14th: $5.14 (... and down)
April 15th: $4.96 (... and more down)
April 16th: $4.87 (... and even more down)

So this confirms what fenders says. The higher the div, the bigger the fall after the dividend date. I'll keep watching to see when it recovers.

Next I'll look at something with a relatively tame dividend, maybe something in the 2-3% range, and see what happens.