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How I go about Dividends as a Trader!Q. “In your view how do you go about with dividends as a trader and as an investor? Do you buy to chase dividends when they are declared or not? A. As a position trader (short term holder), I'm not really interested in buying companies for the dividends released. That’s because I prefer to make money in the short term with the trades I take, according to my short term strategy and analysis. But if I did have an investor mentality and I wanted to take advantage of buying companies for dividends, I would do a number of things. These include: First I would do my own thorough research and due diligence on the company's overall financial health and performance. Second, I would look at the dividend history of each company to see more or less what I would have earned over the last couple of years. Also, if you look at the history of the dividend, it will help you determine whether it's a reliable company to buy. I personally don't believe it's a good idea to chase dividends with stocks. I have also never met anyone that makes money chasing dividends in the short term. The problem is when the dividend is released, the share price tends to drop quite significantly. And you could end up losing more money because of the share price drop, rather than the money you gain through the dividends. This means, you could be stuck holding onto the shares and positions for the next couple of weeks or even months, waiting for the price to recover. Reply: *Hey Timon, thanks for comprehensive respond. It cleared my confusion as a trader when it comes to dividends.
JSE:J200Education
by Timonrosso
Value investing chart setI would like to share the set of charts I use to find and analyse candidates for value investing. It is a rather dense and telling setup where you can find a lots of information. Please allow me to explain them one by one. (The chart is made on the company Nippon Tel. It is not a recomendation for anybody to buy Nippon Tel, I use this chart for educational purposes only) So: what can you see in this chart? A LOT! You can, in a glance asses if a company would qualify for value investing or should be avoided. From bottom up here are the panes, charts, indicators explained: There are 3 panes in this setup. In the lowest pane you will find the dividend information. There are 3 indicators telling a lot about the company's endurance and discipline. We can see that in our example - the company has never been missing a dividend payment over the last 15 years (even during the 08 crisis) - the company has been constantly raising the dividends over the last 15 years - the company has made an ever growing diluted EPS (earnings per share) over the last 15 years - the investment in the current price levels would yield 3,69% (bottom right scale) - the company has been very disciplined to pay out about 50% of the earnings per share and retain the rest within the company resulting growing book value In the middle pane you can see the net income (green territory) of the company and the number of common shares outstanding (blue line). We can see that in our example - the company has been constantly making profit over the last 15 years (even during the 08 crisis) - the company constanly buying its shares back thus helping the existing shareholders to keep/grow the equity per share Now the top, main pane tells the most about the company and its share. Here is what you can read from this chart: - the yellow line will show the Debt to Equity ratio What this is telling you is that the company is ran by vigiliant leaders who are keeping a close eye on the company's long and short therm debt and resist the temptation of today's really cheap loans. As Peter Lynch use to say: it is almost impossible to go bankrupt for a company without excessive debt. The ratio Ben Graham and Warren Buffet (also Peter Lynch) finds healthy here is a 1 to 2 debt to equity ratio. In other words, it is assuring if half of the equity covers all the debt of the company. In the case of our example the current value of this ratio is 0,415 which is a very good level of debt. (Industry specific figure!) The company has been constantly paying it's debt back over the last 15 years and although the figure has been growing during the last 2 years it is still under a acceptable level. - the light brown line is the book value or the shareholder1s equity per share Needless to say the for a value investor it is imperative that the book value is steadily growing, just like in our example from 8,8 to 21. What is even more important is that the current price is below the book value per share or in other words a buyer in these price levels gets a 1 on 1 value for his bucks. Just to give you a comparison: today this value for Apple (AAPL) is 30 to 1! So you pay $ 30 for $ 1 of equity when you buy Apple stock. In our example the book value of this company is steadily growing and the price is currently below the book value. - the pink line on the pane is my "invention" as this is the intrinsic value graph which is calculated by the script I have posted already here. I would not explain in details here, please check out my post and all the comments below it for details. This line shows you what would be a fair value of the stock if you take all the dividends and the book value growth that will happen in the next coming 10 years and discount it back to today's value using the 10 years US Note's yield. This is called the intrinsic value of the company and calculating it is rather art than science, says Buffett. In the case of the example company the Intrinsic Value is around 43 while the price is a bit above 20 which means that a value investor has a 100% margin of safety when buying this stock. - the green/red line is another calculated line: Warren's limit price Ben Graham and Warren Buffett uses a rule of thumb saying that the PE (price earning ratio) multiplied by the Price to Book ratio can not result a higher value than 22.5 to be considered a cheap stock. Here I use the Diluted Earnings figure to calculate the PE ratio to take all the convertible securities (options, prefered stocks, warrants, etc) into consideration. This line shows if the stock can be valued as cheap or overpriced. In the case of our example the current price is under the limit price and can be considered an underpriced stock. As you can see there are lots of fundamental informations you can visualise and asses with this chart setup in order to pick your winning stocks for value investing.
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FWB:NTTEducation
by PeterNagy
29
EDUCATION: EMULATING YIELD VIA SHORT PUTOver time, my basic approach to my IRA has been to acquire shares at substantial discounts over time and to take advantage of "the three legs": (1) short call premium; (2) dividends; and (3) growth, with the eventual goal to be able to solely or predominantly rely on dividends post-retirement, since "growth" can periodically be elusive and short call premium collection on covered calls can vary widely, depending on movement of the underlying, implied volatility, and one's degree of "aggression."* Typically, this has involved selling puts as an "acquire lower" strategy, followed by share assignment, and then covering. However, as we all know, getting into stock at a particular price results in a less than agile setup. After all -- and regardless of whether you buy stocks outright or are assigned them -- once you're in stock, you're in at the price you bought or were assigned, and there's no amount of magic wand waving that will change the price at which you acquired, even if you shed tears and get buyer's remorse later. In comparison, staying in options as long as possible affords you greater flexibility as to potential acquisition price since you can roll for credit and therefore cost basis reduction before your getting full on into the shares. Relatedly, you can essentially "manipulate" the potential share price at which you're assigned by rolling the short puts down and out if you become unhappy with the strike at which you sold originally. All that having been said, what if I want to emulate dividend yield in the shares while I wait to get assigned at a discount? Well, there's a way to do that -- with short puts. Pictured here is an EEM June 19th '20 36 short put, paying .97 at the mid, with delta/theta metrics of 18/.36. 328 days out in time, it's the expiry nearest 365 days 'til expiry, and the delta'd strike (~18) that will pay something approximating the annualized dividend of $90.** In other words, this isn't the actual trade you'd put on to emulate dividend yield (although absolutely nothing prevents you from doing that), but rather a guide to tell you what delta and/or theta you'd need to sell in shorter duration to emulate the amount of annualized dividend. In this particular case, selling the September 20th 40 short put*** would potentially fit that bill. Paying a .30 credit, it has delta/theta metrics of 17.29/.69 with a theta burn nearly twice that of the longer-dated 36, with the downside being that the strike is obviously much closer to current price than the 18 delta sold out in time. However, the theta metric makes it conceivable that you could collect what amounts to the annual premium of .90 in three to four expiry cycles as compared to 12, assuming that the underlying goes sideways, up, or even down to a certain degree during your credit collection/divvy generation emulation process. Post fill, look to roll at extrinsic approaching worthless from the ~18 delta to an ~18 delta strike in an expiry that will pay a credit, aiming to collect at least .25 with any given roll. If you're not able to get at least .25 on a roll to a similarly delta'd strike without going out an absurd amount of time, consider rolling down and out more incrementally. Naturally, this begs the question of whether and under what circumstances it's worth being in stock versus short puts since you can emulate not only dividends, but also growth with short puts ... . But I'll leave that discussion for another day. * -- By "aggression," I mean what delta you're willing to sell as cover (i.e., 20 versus 30 versus 40 versus at-the-monied or even monied). ** -- The annual yield in EEM isn't great -- 2.08%, so I'm primarily using it as an example due to its excellent liquidity and market tightness in the off hours. *** -- Naturally, this is best done on weakness or in a higher implied volatility environment. EEM's at 7/16 here, so you're consequently not getting a ton of juice out of the 18 delta.
AMEX:EEMEducation
by NaughtyPines
Japan REITs: Hidden Gem to Diversify Your PortfolioJapan has long lost its charm to the international trading community. It has been a boring place to trade in for the past two decades, pretty much. In a mature market like Japan, you can't expect explosive growth like you can find in China. However, this market offers a great source of diversification and income potential, if you know where you are looking. The answer lies in Japan REITs. Properties in Japan, be it commercial, industrial, retail, hospitality, or residential, are coveted by mom-and-pop as well as institutional investors from the country and across the APAC region for their stable and (slowly) growing rental income. The chart shows the largest REIT ETF listed in Japan (blue line) versus JPY and SP500 trendlines. You can clearly see the low correlation between JREIT and SPX. In times of volatility in the US, and for those with international brokerage capabilities, why not consider this diversifier across the Ocean? Disclaimers: GMAS is long a few select names within the captioned ETF. Investment carries risk. Investment in foreign dividend stocks is subject to withholding tax. You may be able to claim better withholding tax rate based on your country's double taxation treaty status.
TSE:1343Education
by WhatsTrading