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Top 11 questions about dividends

 
Monday, February 27th, 2017 | Vance Harwood
 

Based on searches that lead people to Six Figure Investing, these are the top 11 questions people ask about dividends:

  1. When is XYZ’s ex-dividend date?   This information can be hard  to find.  Some companies provide the entire year’s dates on their webside (e.g., iShares),  others like Vanguard only reveal the information a few days before the ex-dividend occurs.  I have summarized / estimated ex-dividend dates for many of the popular ETFs here.

     

  2. When is XYZ’s distribution or pay date?  Same as question #1, this information can be hard to find.  I summarize pay dates along with ex-dividend dates for many ETFs here.

     

  3. When do I have to buy a security in order to receive the dividend?   The day before it goes ex-dividend or earlier.

     

  4. When can I sell a security and still receive the dividend?  On the ex-dividend date or later.  You can safely ignore the record date.  See here for a detailed explanation of how this works.

     

  5. What happens to a security’s price when it goes ex-dividend?  It will typically drop by the amount of the dividend—assuming the market is opening flat.   If the market is strongly up or down at opening the price will be influenced by this.

     

  6. What if I’m short the security on its ex-dividend date?  You owe the dividend.  It will be subtracted from your brokerage account on the distribution date.  You borrowed the stock, you are responsible for paying the owner of the security the dividend.  If you short the stock on the ex-dividend date or later (e.g., record date) you don’t owe the dividend.

     

  7. Do I get a dividend if I’m long call or put options on a security?   No, with an option you don’t actually own the security, you only have the right to buy or sell it, so you don’t get a dividend.  However, the prices of options are influenced by dividends, for example the bid price on deep in the money calls will decrease to compensate for an upcoming dividend.  If the dividend is a special dividend, not regularly scheduled, then your options will likely be adjusted, either with a revised strike price or a cash payout (neither to your benefit).  For more on option adjustments see this post.  For news on specific adjustments visit the Options Clearing Corporation Website.

     

  8. What happens if I’m short put or call options on a security when it goes ex-dividend?  If you don’t own any of the underlying security, then nothing direct happens.  Again the option prices are influenced by the security’s dividend, but there is no direct dividend received, or owed. If the premium on your short call is less than the dividend amount your calls may be exercised. If the dividend is a special dividend, not regularly scheduled, then your options will likely be adjusted, either with a revised strike price or a cash payout (neither to your benefit).  For more on option adjustments see this post.  For news on specific adjustments visit the Options Clearing Corporation Website.

     

  9. What if I have a covered call position with a security when it goes ex-dividend?  It depends on how much premium is present on the option price when the security goes ex-dividend.

    • If your calls are deep in the money, with premiums significantly less than the dividend amount, then your options will probably be assigned—and you will wake up on ex-dividend day with your position converted to cash—minus your security and your short options.  No dividend for you.
    • If your options are out of the money by more than the dividend amount nothing will happen to your calls and you will collect the dividend.
    • If your calls are between these two limits then it depends on the prices at the end of the day before the ex-dividend date.  My experience is that if the premium of your calls is 50% or less than the dividend amount, your calls will probably will assigned.

     

  10. Are there any dividend capture schemes that  isolate you from market risk?   The short answer for retail customers is no.  Wall Street excels at  preventing anyone from getting a free lunch.   You can use a covered call position to move away from the zero-sum situation on ex-dividend day of having a dividend, plus a security that has just dropped by the value of the dividend, but you are still exposed to significant market risk.  See this post for more on dividend capture schemes.

     

  11. What happens with a special dividend ?   The stock price will behave the same, dropping by approximately the dividend amount on the ex-dividend date.  Adjustments to the option’s strike prices will be made to existing positions if the special dividend amount  is more than $0.125 per share.  This adjustment process prevents options traders from experiencing big losses or windfalls when a special dividend is announced.  The Options Clearing Corporation newstream gives specifics on upcoming options adjustments. For more about special dividends see “Profiting From Special Dividends

     

Dividends from IVV and VOO

 
Tuesday, September 6th, 2011 | Vance Harwood
 

See this post for updated dividend information for IVV and VOO.

Sailing through the IEF ex-dividend

 
Saturday, April 2nd, 2011 | Vance Harwood
 

IEF, Barclays 7-10 year Treasury note ETF, went ex-dividend April 1st with a declared dividend of $0.248 per share.  Somewhat surprisingly my IEF + DTYS hedge didn’t dip at all, closing at 146.11, the same close as the 31st.  I don’t see any reason why DTYS should go up on IEF’s ex-dividend date—and it is probably just a random thing. I’m not complaining.  During the day the hedge went as high as 146.24.    The average price of the IEF+DTYS hedge since DTYS started trading in August 2010 is 146.17.

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IEF + DTYS: A low risk hedge with dividends?

 
Thursday, March 31st, 2011 | Vance Harwood
 

I continue to evaluate (and invest in) a hedge position created by going long both IEF, Barclays 7  to 10 year treasury ETF and DTYS, Barclays’ iPath® US Treasury 10-year Bear ETN. The net position, holding equal shares of both securities should yield around 1.7% annually, and since I’m willing to bet that interest rates won’t be going down anytime soon I’m boosting the overall yield by about another 3% by writing calls on my IEF position. For more information on this hedge see this post. This hedge seemed to perform well during the recent correction. When IEF climbs quickly DTYS lagged, but it eventually caught up.

IEF is going ex-dividend this Friday, 1-April, so I thought I would take another look at the historical data to see if there was anything noticeable related to the IEF ex-dividend date.

IEF + DTYS hedge, click to enlarge

The yellow triangles mark IEF’s ex-dividend dates. Visually there doesn’t seem to be any significant impact on the hedge.

You might wonder if the IEF + DTYS combination is all that great a hedge reviewing this first chart. The next chart provides a better perspective by showing the normalized individual performance of IEF and DTYS. The standard deviation on IEF and and DTYS is about 3% and 6.5% of their average values respectively (coefficient of variance). The equivalent number for the IEF + DTYS hedge is 0.5%.  The second graph provides a visual representation.

IEF + DTYS with normalized IEF and DTYS, click to enlarge

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IWM and other quarterly iShare Russell ETFs go ex-dividend

 
Friday, September 23rd, 2011 | Vance Harwood
 

iShares’ Russell 2000 Value Index Fund, IWM went ex-dividend Friday, September 23rd with a payout of $0.2498 per share. The distribution date is September 29th. See this post for IWM’s dividend history over the last five years. For the remaining ex-dividend and distribution dates for 2011 see this post.

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