Looking at ex-dividend dates

In this issue we will be looking at finding income stocks. As part of most diversified portfolio, a trader will have value stocks, growth stocks and income stocks. In this case we will be looking for some income producing stocks.

We can screen for the following dividend conditions:

Ex-dividend Date -

The ex-dividend date is when all transactions that have been completed to receive a dividend. If an investor does not own the stock before the ex-dividend date, they will be ineligible for the dividend. Further, for transactions that have not been completed by the ex-dividend date, the exchanges automatically reduce the price of the stock by the amount of the dividend (because a dividend comes from the company's cash reserves, thereby reducing the asset value). In this case the investor would have to absorb that reduction in value (because neither the buyer nor the seller are eligible for the dividend).

The ex-dividend date can open opportunities for traders to purchase the issue right before the dividend payout or to purchase the stock after the dividend at a reduced price.

Sample effect of a ex-dividend date:

Ticker symbol GJM
Company Name Genl Motors Accept 7.35% Notes
Business Description Senior Issue Notes
Reference year for dividends is 2004
Ex-dividend date 01/12
Year 1 dividend 1.84
Year 2 dividend 1.83
Year 3 dividend 0.45

We can see a week prior to the ex-dividend date where traders buy the issue simply for the dividend. During the ex-dividend period a sideways move followed by a down gap as the issue price is corrected.

We can also see in this two year chart, a similar correction can be seen at the Jan/03 & Jan/04 ex-dividend dates.

Dividend Yield -

Gives an indication of the income generated by a share of stock. Dividend yield is calculated by taking the amount of dividends paid per share over the year and dividing by the stock's price. For example, if a stock pays out $1 in dividends over the year, trades at $10, then it has a dividend yield of 10%.

In the case of GJM, the Dividend yield was 7.50%.

Historical Dividend Amounts -

When evaluating income stocks, looking at the historical dividend payouts will give you an idea of the history of payments. This is important since in the case of income stocks we want to ensure that the issue will pay again in the future.

In the case of GJM, we have the following.

First, the reference year for dividends is 2004 as well we should expect an annual dividend rate based on the latest payment of 1.8375 per share.

The historical dividend payments for GJM were as follows:

Year 1 dividend 1.84
Year 2 dividend 1.83
Year 3 dividend 0.45

Which generates dividend growth ratio's of:

Dividend Ratio - 2 Year 1.01
Dividend Ratio - 3 Year 4.09

We would expect the next years dividend to have increased or decreased pending the performance of the parent entity (General Motors). By knowing this we can have an idea of the impact of the price correction.

Approximate Correction Range:

To get a quick idea of the range the stock fluctuates we can look at the historical high/lows.

Year 1 high 26.6500
Year 1 low 22.4000
Year 2 high 26.0700
Year 2 low 23.3700
Year 3 high 25.5600
Year 3 low 19.9000

As with most income stock, they tend to fluctuate on a range based on the dividend yield and future estimates. High's are typically generated just prior to a dividend issue and lows are quickly formed after the payout. Around the ex-dividend date area, large volume fluctuations can also be seen. All these characteristics will tell you that you have found an income stock. Evaluating the profit which can be generated still needs to be determined.

In the case of GJM, buying and selling the high's and lows would create an approximate return of 10-18% (if you could buy exactly the low and high without comissions). The general dividend yield is 7.5%.

The Screen

When scanning for the ex-dividend, scan each exchange individually.

In this case I have only scanned NYSE, and there are no technicals.

The results have been sorted by ex-dividend date.

This was done so I could skip to the page where the date is about 1 month in the future if I am looking to pick up the dividend or if I would like to buy the issue at a low price I look at ex-dividend dates that occured a day or two ago. This strategy of income stocks with ex-dividend dates is an effective way to diversify your portfolio.

Note: Net income, cash flow and general company health and growth need to be analysed carefully before entering into one of these issues.