Why Playing With Ex-Dividend Dates Isn't Worth It

Includes: BBRY
by: The Dividend Guy

play ex-dividend dateCan you play with an Ex-Dividend date? Is there a way to make a quick buck by trading the stock according to when it pays its dividend? Do you believe in elves and hobbits? Okay… maybe some people look like hobbits… so maybe playing with Ex-dividend dates work… Let’s take a look at this trading “strategy”.

How Can You Make Money By Playing The Ex-Dividend Date

I assume you probably are familiar with the Ex-Dividend date concept.

So let’s take a look at an example on how you could possibly make money by playing with the Ex-Dividend date:

Stock X trades at $10 and issues a $1 annual dividend paid quarterly (so $0.25 per quarter). On May 1st, Stock X announces its dividend payout to be distributed on May 25th. In order to receive the dividend, shareholders must own the stock on May 23rd.

May 23rd is the ex-dividend date. Which means that if you purchase your stock on May 24th, you won’t be getting any dividend payout from the previous quarter.

So what happens to the stock on the ex-dividend date? Technically, if the market wasn’t playing on the stock and we would just look at the intrinsic value of it, the value should decrease. The shareholder prior to this date will receive a dividend and if you buy it after the ex-dividend date, you won’t get it.

Therefore, some people think that you can play with the ex-dividend date and earn money. Unfortunately, playing with the ex-dividend dates is so simple.

Monitoring Ex-Dividend Dates

The first problem you will encounter is tracking the Ex-Dividend dates. Technically, there are no global sources to find this information as it requires a lot of time to gather all the information together.

On one of my other sites, we monitor the TSX Ex-Dividend Date on a monthly basis. However, these dates are mostly estimates from financial analysts and can be different than the Ex-Dividend date announced by the company at a later date. As for US stocks, you can check Dividend Calendar. Here again, you get estimated Ex-Dividend dates but if you want to track the real one, you would need to follow the company’s press releases.

As you can see, tracking Ex-Dividend dates for a portfolio of 5 to 10 stocks is not too bad but if you want to follow more than this, you better have a lot of time on your hands.

Playing with the Ex-Dividend dates: an Example

I told you I shorted RIM (RIMM) last week. I couldn’t stand its poor level of competition and I didn’t forecast any improvement from RIM in the future. This is why I decided to take my loss and walk away. Well I have already made my first move from the proceeds of RIM (I still have one more to make). I will cover my purchase in another article but I will use it as an example since I have purchased ZWB.TO the day prior its Ex-Dividend date.

So here are the numbers we need:

  • I bought ZWB on 5-25-2011 at $16.20 and the stock closed at $16.20
  • The Dividend payout was $0.13 / share
  • The Ex-Dividend date was May 26
  • Range of price during May 26:
  • Stock Opened at: $15.98
  • High: $15.98
  • Low: $15.85
  • Stock closed at $15.95

What was the play to do with the Ex-Dividend date?

Technically, if someone had sold the stock on May 25th at $16.20 and bought it back at $15.92 (median price between $15.98 and $15.85) the next day, he would have “lost” its dividend payout of $0.13 (since he was not a shareholder at the end of the Ex-Dividend date) but he would have bought the stock $0.28 lower. Therefore, he would have made a profit of $0.15 compared to the option of keeping the stock until the Ex-Dividend date. That’s a 0.94% yield in one day ($0.15 on $15.92). However, just to offset the transaction cost (let’s put it at a minimum of $5 per trade), you would need to trade 68 shares (so a value of at least $1,082). Over 68 shares, you start making a few bucks.

Playing with Ex-Dividend dates ... is it worth it?

In the light of this example (I know it’s only one stock example on one Ex-Dividend date), I don’t think it's really worth it wasting your time playing the Ex-Dividend date system. I find too many disadvantages:

a) You need to trade a large volume in order to generate a sustainable profit (would you really make a play on the Ex-Dividend date just to earn $100?)

b) The spread in this example is pretty small; which leads to no margin for error. Imagine if there is good news on the stock at the same time as the Ex-Dividend date and the stock goes up instead of going down?

I would rather keep my dividend stocks than play with the Ex-Dividend date

What is your take? Do you play with the Ex-Dividend date? Have you had success with your trading techniques with regards to dividend payouts and Ex-Dividend dates?