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Dr. Kris has two degrees from MIT because one just wasn't enough. Her life goal was to figure out the universe and having done that (at least to her satisfaction), she decided to tackle something even more difficult—the stock market. Applying the scientific method along with an insatiably... More
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  • Trade Of The Day: Cabot Micro ($CCMP) 12 comments
    Feb 14, 2012 3:34 PM | about stocks: CCMP

    Trade of the Day: Cabot Microelectronics (CCMP; $51.70) today announced a whopping $15 dividend payable on March 1st to shareholders on record as of February 23rd. The ex-dividend date is March 2nd which means that the stock can be purchased up to March 1st to be eligible to receive it, although if the stock is sold between the record date and the ex-date, the dividend is not allowed.

    This trade offers a fantastic return on investment (ROI) of nearly 30%. That's a 780% annualized ROI! The downside to this trade is if the stock should fall in value. This concern can be greatly minimized by buying the March 50 put which is now selling in the 80 to 90 cent range. HOWEVER, in the past the CBOE has adjusted its options pricing to account for special dividends. So far, it has not done so but I suspect it will shortly. This can greatly affect the trade risk but even so, the stock has to drop $15 in order to start losing money.

    Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in CCMP over the next 72 hours.

    Themes: special dividend Stocks: CCMP
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Comments (12)
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  • Maybe I am missing something but this is how I assume it will work. On the day the dividend is paid the stock price will drop immediately by $15 - so you will gain $15/share in dividend but will lose the same amount in share value. Your $50 strike puts will be adjusted to $35 strike puts. So the only return will be any appreciation in the stock price between your purchasing and the close before the ex-div. date less the cost of the puts.
    15 Feb 2012, 06:03 AM Reply Like
  • Author’s reply » Yep. That's exactly what will happen. What's interesting is that the stock didn't pop much on the news which one would have expected. Today, the stock dropped along with the major indexes but buyers are stepping in at the $50 level.

     

    You would think, though, that if people feel the the stock is worth $50 *without* a $15 dividend that they would feel it would be worth more *with* a $15 dividend.

     

    I'm scratching my head on this one...

     

    Dr. K
    15 Feb 2012, 04:02 PM Reply Like
  • Ok I'm a little confused here... If the stock is purchased on FEB 28th the do you get the dividend or do u have to own it on the 23rd? What I would like to know is when do u need to place your trade by to be eligible for this option?
    21 Feb 2012, 12:20 AM Reply Like
  • Ok I'm a little confused. Above it says the ex dividend is March 1st. When must you own the stock to be eligible for the dividend? Must you own it on the 23 or do you need to own it on or before march 1st?
    21 Feb 2012, 12:21 AM Reply Like
  • Author’s reply » You have to buy it by the ex date.
    21 Feb 2012, 12:30 PM Reply Like
  • Author’s reply » (I should have made the reply here and not below.)

     

    Brgibson--From the company's press release:

     

    "The company understands that this will mean that stockholders who purchase the company’s stock after the record date of February 23, 2012 and before the ex-dividend date of March 2, 2012 will be entitled to receive the special cash dividend, and stockholders who sell the company’s stock during that same time period will not be entitled to the special cash dividend. Investors who enter into trades to purchase the company’s stock on or after the ex-dividend date of March 2, 2012 will not be entitled to the special cash dividend payable on March 1, 2012."

     

    Link: http://bit.ly/wL7dxR
    23 Feb 2012, 06:42 PM Reply Like
  • This one is a little confusing based on the Nasdaq's special 25% rule on dividends. Dr. Kris, normally don't you have to buy it two days before the ex-div date? So should you sell it at the open of Pre on 3/1 or will it be at $35 at the open on 3/1 anyway? How can you buy on 3/1 if the divy is supposed to be paid on 3/1?
    21 Feb 2012, 01:03 PM Reply Like
  • Author’s reply » Please see the above reply.
    23 Feb 2012, 06:43 PM Reply Like
  • I'm wondering why they're borrowing over $275M and using another $100M from accumulated profits to pay such a large dividend (30% of current share price). Are they spinning off a unit?
    23 Feb 2012, 04:18 PM Reply Like
  • Can anyone tell me why they're borrowing $275M and using $100M of their accumulated to pay such a large dividend (30% of current stock price)? Are they spinning off a unit of the company? Just seems odd considering they haven't paid a dividend recently. MSFT did something similar years back but they had the cash on hand to do so, they weren't borrowing.
    23 Feb 2012, 04:18 PM Reply Like
  • Author’s reply » Brgibson--From the company's press release:

     

    "The company understands that this will mean that stockholders who purchase the company’s stock after the record date of February 23, 2012 and before the ex-dividend date of March 2, 2012 will be entitled to receive the special cash dividend, and stockholders who sell the company’s stock during that same time period will not be entitled to the special cash dividend. Investors who enter into trades to purchase the company’s stock on or after the ex-dividend date of March 2, 2012 will not be entitled to the special cash dividend payable on March 1, 2012."

     

    Link: http://bit.ly/wL7dxR
    23 Feb 2012, 06:40 PM Reply Like
  • Can I sell after close today or tomorrow during Pre to get the divy? I thought the payable date was today.
    1 Mar 2012, 01:34 PM Reply Like
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