Eight Stocks Going Ex-Dividend This Week

The technique of 'Buying Dividends' is buying stocks shortly before they go ex-dividend and selling after the ex-dividend date at break even or at a slight profit, but taking advantage of the fact that you earn the dividend with your money tied up for just a very short period of time. If you are unfamiliar with the concept of 'buying dividends', you should check out my previous article called Buying Dividends.

The following stocks all go ex-dividend this week. They have yields of 3.5% or greater, P/E's at or below 15, and PEG ratios below 2.0:

• Triangle Capital Corporation (TCAP):  6/3/2008 10.28% P/E: 9 PEG: 0.46
• Bank of America Corporation (BAC):  6/4/2008 7.37% P/E: 15 PEG: 2.00
• Euroseas Ltd. (ESEA):  6/4/2008 6.83% P/E: 8 PEG: 1.21
• Reynolds American, Inc. (RAI):  6/6/2008 6.17% P/E: 11 PEG: 1.56
• National Australia Bank Ltd. ADR (NABZY.PK):  6/2/2008 5.18% P/E: 12 PEG: 1.36
• Pepco Holdings, Inc. (POM):  6/6/2008 3.96% P/E: 14 PEG: 1.27
• TELUS Corporation (TU):  6/6/2008 3.74% P/E: 12 PEG: 0.90
• First Merchants Corporation (FRME):  6/4/2008 3.69% P/E: 14 PEG: 1.76

Disclosure:  The author does not own any of the above.

 

Comments

[charley:]

thats by far the dumbest thing i have ever read. do people really do things like that?

2008 Jun 02 07:38 AM

[notsosmart:]

left out fro(big div.)

2008 Jun 02 08:30 AM

[Wyatt:]

People do indeed do this, and they made a decent profit at if if they can get around transaction costs. Big IF, of course.

Theory holds that share prices should drop by the exact amount of the dividend at ex-dividend, but they usually do not. Average time to break even is usually around 6 days.

2008 Jun 02 08:41 AM

[copesetic:]

It's great for a IRA,because you get around capital gains. I've made 25% in a year.

2008 Jun 02 09:44 AM

[vaduz:]

not a bad idea

2008 Jun 02 10:07 AM

[adan:]

really interesting - two things...

what is peg? ie, how is it important for this kind of transaction?

and

wouldn't it be wise to at least see if there's anything equity market-wise negative possible/probable on the horizon, then make a risk / reward decision?

2008 Jun 02 10:22 AM

[John Lounsbury:]

Adan - - -

PEG is the ratio of Price/Earnings ratio divided by the earnings growth rate (usually the 3-5 year forward estimate). It may not have importance for a 5-10 day strategy such as dividend capture. I would speculate that there might be a smaller risk of a loss for very low PEG vs very high PEG, but sometimes very high PEG stocks are in a bubble and might keep going higher in the short term. This would be worth a careful study; the downside is that the results would be subject to the rearview mirror criticism.

2008 Jun 02 12:50 PM

[CES:]

If I buy the day before the stock goes exdiv do I get the dividend?? Or do I have to buy 4 days before so the trade settles prior to the exdiv date and is recorded on the company's books? If I buy 1 day before the exdiv date-who gets the dividend??

2008 Jun 02 01:29 PM

[BlueOkie:]

Very Risky I suspect! I don't think you can buy dividends without taking the risk of the stock.

2008 Jun 02 02:32 PM

[whisperonth...:]

not so smart, FRO's ex-date is today. Too late, but what a NICE div. CES, the day before is good for the dividend. The day OF the ex-date is too late. And consider commissions on buying and selling, you have to take those into account to really count a profit. If it costs you $10 to buy a stock (no matter how many shares) and $10 to sell it, then you need to make sure you're going to get MORE than $20 in profits or it's not worth selling (and maybe not worth buying).

2008 Jun 02 02:51 PM

[whisperonth...:]

I also picked up a few more shares of FRO, after the price dropped about $4 today, and added them to my stash... this is one I'm hanging onto. I like the dividend and I don't like paying the commission. I can always just have them send me a check, instead, and have the best of both worlds.

2008 Jun 02 02:53 PM

[samadams:]

I believe there is an ETF from Alpine that practices this strategy and yields over 10%.

2008 Jun 02 07:05 PM

[EDBTZ:]

CES
As long as you buy before the ex-dividend date you will recieve the dividend. The ex-date takes into account the time it takes to get the stock recorded in your name.

2008 Jun 02 08:02 PM

[CWo:]

This is a great strategy for good companies. A lot of times, companies that are in trouble will offer high dividends to attract investors. Stay away from those! But there are plenty of solid companies that offer 8-10% dividends...shipping companies especially (PRGN, ESEA, DSX...)

2008 Jun 03 02:20 PM

[Chemist29:]

Doesn't the stock go down by the dividend amount? (answer: yes) Seriously you people are not the first to think of this...

2008 Jun 04 12:49 PM

[User 344805:]

I think you will make money even if you sell at the purchase price minus the amount of the dividend. The dividend gain is taxed at 15%, and the loss will offset short-term capital gains which is taxed at normal tax rate, up to 35%. So, you make the difference in the tax rate.

Jan 26 03:01 PM