Northern Tier Energy (NTI) stock price dropped on May 15, 2014 because the ex-dividend date passed and investors sold to take the dividend and hold their stock price. This is normal, but the drop of $1.35 was more than the dividend of $0.77 per share. As an investor, I know that the best time to buy dividend stocks is 7 to 30 days after the ex-dividend date, as this is the low point in the cycle. More on this later.
NTI's fundamentals are solid as presented in the First Quarter Financial Report on the company website. The production was strong as the total throughput was 92,628 barrels per day for the first quarter of 2014, which was up just over 7200 barrels per day over first quarter 2013. The operating income at $97.8 million, which was down compared to 2013, but the crack spread during 2013 pushed profits higher. 2014 was impressive just on its operations.
The cost of crude has remained steady over the last 90 days bouncing just over and under $100. The crude price will open at $101.50 on May 16. The market price has risen steadily and the refinery continues to profit from an increase in the top line sales. With the summer driving season approaching the market will continue to support strong prices and allow NTI to profit throughout the summer.
NTI went ex-dividend as of May 14, 2014. The stock price closed on May 14 at $28.38 and dropped $1.35 to close at $27.03 on May 15. The dividend that will be paid on May 30 will be $0.77 per share, which demonstrates the attempts by many investors to receive the dividend and sell before the price dropped out of the bottom. Apparently, not all sellers were quite so lucky. I will describe 2 methods to earn a solid return without the stress of attempting to buy and sell in the split seconds like the investors above.
Here are my two recommendations of getting the most from the opportunities.
Using NTI as the example, which is a quarterly paying dividend stock, I recommend you buy the stock between 7 to 30 days after the ex-dividend date, usually after the stock pays the dividend, when most investors are looking elsewhere. This is the low point on the stock, the high point will be just prior to the next ex-dividend date.
Option 1. Buy the stock after the ex-dividend date at the low point. Hold the stock until the stock increases just prior to the ex-dividend date. Sell the stock between 5 days out and the day of the ex-dividend. At this point you don't have to be greedy, just find a nice sell point that has a good profit.
My case study here shows NTI's track record for the first quarter, 2014. On February 19 (ex-dividend date for 4Q, 2013) the stock price was $25.07, and dropped $0.76 on February 20 to $24.31. The dividend was $0.41 for the 4Q. The lowest open for the stock was on February 27, 2014, at $23.93, only 8 days after the ex-dividend date, but remained in that price range through March 5. Over the next 60 days the price steadily climbed to the highest open on May 14 at $29.20. During the last hours of the ex-dividend date there were sellers moving out of their position before the drop on May 15, 2014. Had you, the investor, bought near the end of February at $24.00 and sold on May 13 at near $29.00 you could have earned a very nice $5.00 profit for the quarter. Better than the $0.77 dividend the company paid.
Option 2. Buy the stock after the ex-dividend date at the low point. Hold the stock for the long term and enjoy the double digit dividends the company is paying. Had you have bought near the end of February at $24.00, and taken the $0.77 per share dividend, that would have created a 12.8% annualized return for yourself. If you would roll your dividends over, your purchase would be during the low point of the stock price, and you would again watch the stock price rise, and pay a strong, double digit dividend for you to enjoy.
These methods can be applied to most stocks paying healthy dividends. I strongly recommend you do your homework to ensure the companies you select continue to pay strong, quality dividends that will allow the price to fluctuate per our model. Companies paying near 10% or better are strong candidates for these methods to prove successful.
Disclosure: I am long NTI, CVRR, WMC. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.