How to invest in dividend stocks. Dividend earning strategy. How many shares do you need to receive dividends
How can you earn on dividends, for example, shares of Gazprom or Sberbank? And what needs to be done for this? Where to begin? There are several answers to this question. Or rather, strategies that allow investors to profit from the stock market by buying shares of dividend companies.
Briefly about dividends
For those who have a very vague idea about the procedure for calculating and paying dividends, we will conduct a small educational program.
- There are companies that pay dividends. And companies for which you will not wait for payments. The very procedure for accruing remuneration to shareholders is prescribed in the company's charter. Usually this is some share of the profit (from a modest 5-10% to 50 and even 70%). Accordingly, we need dividend stocks.
- Dividends are usually paid once a year. Sometimes 2 times (but rarely) or 4 times a year (very rarely). Everything depends on the company.
- How much pay? From a modest 2-3% to 15-20%. On average, you can focus on 5-8%.
- Information on dividend shares: the name, when and how much they will pay, can be found in the dividend calendar. For example, .
- Information about the payment of dividends (the date of payment and the amount per share) becomes known approximately 2 months before the payment. After the meeting of shareholders.
- The record closing date (or dividend cutoff) is the last day you need to own shares to qualify for dividends. That is what is listed in the dividend calendar. It is enough to buy shares on this last day - and receive a reward. Accordingly, if you sell securities at this time, you will not receive dividends (even if you owned the paper for several months).
- After the register is closed, everyone who owned shares will receive dividends within 2 months to their brokerage account.
- There are many who want to buy securities and participate in the profit sharing. Increased demand pushes prices up. The next day after the cutoff, the price of securities immediately falls. Usually not less than the amount of accrued dividends. Investors are no longer interested in securities, profit has been received. And the massive sale begins.
Strategy or speculation?
In the stock market, profit using dividend stocks can be obtained in two ways:
- Growth in the market value of securities.
- Receiving dividends.
Ideally, it is better when both methods work and generate income for their owners.
You can invest or speculate.
What is the difference?
An investor who buys dividend stocks expects a constant cash flow from them. Annually. Plus, the value of the shares will increase over time. But….. this is a long process, designed for years.
Speculators try to make money on short-term investments. And make money fast. Here and now. Their horizon is from a few days to a couple of months.
To illustrate, let's use an example from real life.
Stepan (speculator) buys a chicken for 100 rubles. The next day, she brings him an egg. Stepan immediately sells both a chicken (for 100 rubles) and an egg (for 5 rubles). In total, he earned an instant 5% profit. The next day, the pattern is repeated.
Ignat (an investor) also buys a chicken for 100 rubles. But unlike Stepan, he does not sell it. But only an egg. And so every time. If we remove the cost of poultry feed, then the net profit from one egg is, of course, not 5 rubles, but much less. But on the other hand, Ignat secured a constant profit for himself for a long time.
If Ignat decides not to sell the egg, but grows another chicken out of it, then
- his capital will increase (two chickens are worth more than one) - we have an increase in market value;
- profit from the sale of eggs from two hens will increase - high dividends as a result of business development.
What to do everyone decides for himself. Many factors influence this. Are you ready to constantly monitor profitable options. Or you don’t want to bother and invest according to the principle “the less often the better”.
It is impossible to say unequivocally which of the ways to earn money is better (and more profitable). Someone achieves simply phenomenal success in speculation. Others "raise" good money on long-term investments.
5 Ways (Strategies) to Earn on Dividends
To earn on company dividends, use one of the following strategies.
Bought and keep
The simplest strategy. As the name implies, you need to buy shares of one or more companies. And that's it. Every year receiving dividends. And allowing the company to grow and develop. The growth of the company will entail an increase in its profits. And this will affect the amount of dividend payments upwards.
The problem is solved by expanding the portfolio to include shares of several companies. Albeit with a lower dividend yield. The problems that have begun in one company will not affect the receipt of dividends from others.
I see the future
No one will ever tell you with 100% certainty what will happen to the market or specific shares of companies in 5-10 years. Even after 2-3 years. And if he says, don't believe him.
Today, a company can pay generous dividends, and in a year cut them at times. This is found everywhere.
And vice versa. A company with a very modest dividend history may suddenly "shoot" and start paying generous dividends.
Therefore, betting only on high-dividend companies is not worth it. The middle peasants should also be present in the portfolio.
Example. Dividends were not Aeroflot's forte. In 2002, shareholders received a modest 6 kopecks per share. Sometimes the company did not reward shareholders at all. There were years when dividends were not paid. In 2017, investors received 17.5 rubles per share. And the company promises to adhere to a high dividend policy in the future.
For 15 years, dividend payments have grown almost 300 times!!!
Reinvestment
Buying additional shares with the dividends you receive is a free way to increase your investment returns in the future.
For example, they received dividends at the rate of 10% per share. Buy new ones for them. The next year, they already earned 10% more, in the form of dividends. And so every year. The rule applies here. Which, for long periods of time, can significantly increase both capital and annual profit.
As a result, in about 15 years you will already have 4 times more shares. And the annual dividend income will be already 40% of your initial investment.
And we still do not take into account that quotes can also grow significantly. As well as the amount of dividend payments. Then the return will be even higher.
Rebalancing
After the formation of a portfolio of dividend stocks, the following situation may occur. Some papers can significantly increase in price. And their share in the portfolio will be unnaturally high. And as a result, the risks increase in the event of adverse situations.
It is desirable to maintain the share of assets in the same proportion (or initially set). And you need to sell some of the expensive papers. And on them to buy shares with a fallen price.
- do not let the risks grow;
- get additional profit by selling part of the shares at maximum prices;
- with the proceeds, you buy a lot more other stocks at a good discount.
For example, you have 200 thousand rubles. With this money, you bought Gazprom and Sberbank in equal proportions. For 100 thousand shares of each company. A year later, Sberbank shares doubled (+100 thousand rubles of profit). And Gazprom fell by 30% (30 thousand loss).
Net financial result - 70 thousand profits. Or 270 thousand the cost of all papers.
During the year, the share of shares in the portfolio changed. Now Sberbank accounts for almost 75%, while Gazprom only 25%.
And if Sberbank starts to decline, you will suffer very big losses. And the growth of Gazprom will have a lesser impact on the overall profit.
We sell 25% of the portfolio in the form of Sberbank shares at a high price. Thus, we fix part of the profit. And with this money we take Gazprom with a good discount.
Successful investments and generous dividends!
Greetings dear readers. Not too long ago, I attended a great webinar on dividend strategy.
Historically, Russians widely use and are well aware of only one type of investment - bank deposits. Below in the table, I want to give you Central Bank data on the dynamics of the deposit rate for the last year, broken down by months.
Perhaps I’ll start with the fact that (shares), in addition to the ability to rise in price over time, also have an excellent option in the form of dividends. Let me remind you that this is such a payment, which is a process of dividing part of the company's profits between its shareholders. In Russia, as a rule, these payments are made once a year or every six months. Dividends also have the other side of the coin - they may or may not be. Here, in contrast to, at all the will of the board of directors.
Interestingly, out of more than three hundred issuers traded on the MICEX, only 5 companies pay dividends once a quarter. Almost everyone else follows the once-a-year model.
The table below shows the top 10 companies according to MICEX. In it, you can see the amount of dividends declared at the AGM (Annual General Meeting of Shareholders) 2015 and the value of shares at the time of the cutoff. Knowing these 2 values, we can calculate the dividend yield using the formula:
DD(dividend yield)=dividends/quote*100%
Calculating the total dividend yield for all issuers, we get 3.72%, which is much less than even such a conservative instrument as a bank deposit. However, do not despair.
Faced with this situation, you can try to build a portfolio of the top 5 securities, which will include issuers with the highest dividend yield. Just such a portfolio can be seen in the table below.
Please note that the return on such a portfolio is already 6%.
Attentive readers have probably already noticed that we calculated all the previous figures for 1 share. However, on the stock exchange, shares are sold only in lots, and each lot can contain from 1 share (like Norilsk Nickel, for example) to 10,000 shares. (as for example at VTB). Thus, having recalculated the yield on lots, the TOP 10 companies by MICEX would have already given us 4.83% in money terms:
By analogy with the previous calculation, I propose to recalculate our diversified portfolio of the 5 most profitable securities. The result will pleasantly surprise you - 8.5%. With such a yield, you can already compete with a deposit, right?
Here, many of the novice investors will ask a quite reasonable question: “Why not just buy the papers of Surgutneftegaz with all the money, because their yield is more than 21%?”.
My answer will be simple - diversification. You probably already know what it is. For those who are not familiar with this concept, I will explain using the example of Surgut what can happen if you buy these papers “for everything”:
In general, this information is quite open and does not represent any secret, however, not everyone understands that the profit of Surgutneftegaz has two components:
- Main activity (extraction of minerals - oil and gas)
- Currency bank deposits
In those days when the dollar was lower, the share of profit that brought deposits was very small. But in connection with this money, they began to bring super-profits, which in turn affected the company's net profit, which, according to Russian accounting standards, is converted into rubles.
Here it is worth assuming that one day the growth of the exchange rate will stop, and oil prices will remain at a low level, and then Surgut's income will fall sharply, which will entail a reduction or even suspension of dividend payments.
That is why it is extremely important. In a good portfolio, the drawdown of one issuer is always compensated by the growth of all the others.
Superdividends
Based on everything we've discussed above, the moderately savvy investor will consider building a portfolio that includes only the companies that pay the highest dividends.
In the table below you can see just such companies.
Please note that by collecting a portfolio of only 1 lot of each of the issuers, and spending 37,243 rubles on its formation. we received a dividend yield of 12.9% or 4787.35 rubles.
How do you even look for such profitable companies?
Here, the regulator itself plays into the hands of investors, which just recently made a wonderful gift. Now issuers are required to lay out in the "material facts" information about the decisions of the board of directors. In turn, the board decides on the payment of dividends 55 days before the meeting. Those. we have almost 2 months to make a decision to buy paper.
Moreover, the meeting sets a cut-off date (closing of shareholder registers) for the payment of dividends. It must be held between 10 and 20 days after the meeting. Those. we have an additional 10 days to make a decision.
Let's now compare this strategy again with the already mentioned bank deposits.
Please note that the final yield (11.22%) was received by us for half a year, while the bank pays you an annual interest.
By the way, there is a good dividend calendar here, but it does not update too quickly. Personally, I use the service from Conomy. I really like their online portfolio monitoring (which can be done by registering in the system, the price data for securities comes online from the stock exchange!). Another plus is a bunch of different statistics and a really convenient dividend calendar. Try it!
Reasons for paying high dividends
Why are such dividends even possible? What if tomorrow firms stop paying such high interest rates? Of course, there are many such reasons, but today we will analyze the three most obvious ones.
Replenishment of the federal budget
Pay attention to the companies from the first column. What unites them? Correctly, in all of them the state is the majority shareholder. The payment of dividends on the shares of such companies is a vital payment to the federal budget. For companies from this list, the level of 25% of net profit is set. You always need to replenish the budget, so this acts as a kind of guarantee of high dividends.
Replenishment of regional budgets
A similar situation with the shares of companies from the second column. The only difference is that the dividends of these companies replenish the regional budgets. In this regard, the companies of the Republic of Tatarstan are very interesting. They are exempt from paying dividends to the federal budget, but in return for their deductions to the local budget, they already account for 30% of net profit.
Change of ownership
The third group of companies is united by one event - the change of ownership. Where do you think the new owners of such companies get money from? Of course, these are loans. And as you know, loans always have to be paid. Just in order to cover such a loan, immediately after the change of ownership, dividend payments increase. An example with numbers for VSMPO-AVISMA can be found in the table below.
There is another interesting relief in Russian legislation - majority shareholders who own a package of 50% of shares for more than 1 year do not pay taxes on these dividends, unlike us (13%).
How to find such companies?
How to identify those who are preparing to pay high dividends? Today, I know only 2 criteria, evaluating which you can come to some conclusion:
- We follow the net profit. It is very important to follow the news feed. If the company's net income has grown significantly, this may mean that the board of directors will soon appoint high dividend payments.
- Retained earnings. It is also important to monitor the reporting of the issuer you are monitoring. This is especially true for such an indicator as net profit, which is located in the "Liability" section of the balance sheet.
However, the potentially high profitability of such trading can be attributed to additional advantages, because in the article I did not take into account another important aspect - the market value of the stock itself can also grow ... If you are confident in your abilities, there is no reason not to try this method.
The material was prepared according to the webinar of Larisa Morozova "Hunting for dividends" finwebinar.ru.
P.S. If you are an absolute beginner and are just getting into working with the QUIK trading terminal, here you can get free video instruction by setting it up. Enjoy!
Invest hello friends! To be guaranteed to earn on dividends, you need to wisely buy dividend stocks. Otherwise, you can buy fewer shares for the same money and lose a significant portion of the profits. In general, earnings on dividends is a whole art. But if you want to plunge into this fascinating world, start trying now!
Dividends are paid by the company from the profits received. Accordingly, you can count on getting them if only the company is successfully operating in the market. The more dividends and the more stable the company's financial position, the more expensive its shares.
To receive dividends and, in fact, to earn on dividends on shares, you must own a security at the cut-off date. This is the last day when the register of shareholders is closed. On whom the share was recorded on that day, he receives dividends.
For example, in 2018, Alrosa closed the register on June 14. You had to buy the shares before June 11 - an amendment for the weekend plus the T + 2 trading mode (the shares are credited to your account on the second day, so you need to buy at least 2 days before the cutoff).
You can sell a share even the next day - the main thing is that you own it on the closing date of the registry.
To calculate how much you can earn on dividends, you need to look at the same dividend calendar. In the Alrosa example, it was possible to earn 5.04 rubles per share. The yield was 4.94% - the share itself was worth 106 rubles on the closing date of the register.
Where can I buy dividend stocks
Short answer: any broker with access to the Moscow Exchange.
Detailed answer: issuers are listed on stock exchanges, including the Moscow one. But you can’t just come and buy a share there. We need an intermediary. They act as a broker.
You will be required to pay a commission to buy shares. Usually it is generally small - hundredths or tenths of a percent. But in addition to it, brokers charge a fee for custody services, account maintenance, etc.
In general, to buy a share, you need a broker. Nothing without him.
Which companies to choose to buy dividends
To make money on dividends, you need issuers who consistently pay these same dividends. In not so much. I personally recommend:
- MTS - stable payments and, in principle, a good future;
- Lukoil - regularly increase dividends;
- Sberbank is the main bank of the country, the dividend policy provides for an increase in payments;
- Moscow Exchange - growth prospects;
- Norilsk Nickel;
- Gazprom.
From foreign issuers:
- Kimberly-Clark;
- SySCo;
- Coca Cola
- Apple;
- Berkshire Hathaway;
- Procter & Gamble (manufacturer of Tide);
- McDonald's and others.
These companies consistently pay dividends – and, more importantly, regularly increase the size of payments. By buying Dividend Aristocrats stock at a discount, you can count on the fact that one day the dividend will even exceed the purchase price.
In general, you should choose dividend stocks based on the following data:
- how long the company has been making payments;
- Are dividends growing?
- what is the financial condition of the company;
- whether the shares are overbought;
- Are dividends included in the share price?
- whether the company is repurchasing shares (if so, this is a good sign, since, firstly, stock prices will grow, and secondly, management will be ready to pay generous dividends to themselves);
- whether there are plans to change the dividend strategy.
Of course, you should also look at the ratios - primarily P/E and P/S. And stick to any of the strategy of buying dividend stocks.
And one more thing - the profitability in the past guarantees the same profit in the future. Consider this a risk warning.
Strategies for buying dividend stocks
Buy and hold
The simplest strategy, it is sometimes called the averaging strategy. Its essence lies in the fact that you can earn on dividends on shares simply by acquiring them in certain shares at regular intervals.
Important: in the following example, I did not calculate the profit to the nearest ruble, it is more important to understand the very principle of the strategy.
For example, a year ago you decided to save 5,000 rubles from your salary and use this money to buy Sberbank shares at the current price. Over the past year, quotations have fluctuated from 140 to 220 rubles per share. You managed to buy 330 shares for an average of 180 rubles.
In 2018, the amount of dividends was 12 rubles per share. Consequently, by the middle of the year (and Sberbank pays dividends in June), you had about 300 shares, and you received 3,600 rubles. If the bank increases the payout next year, then you will receive even more - due to the increase in the number of securities held and due to the greater number of dividends.
The beauty of the strategy is that you don't have to calculate multiples or understand financial statements. You simply buy shares of well-known reliable companies that pay dividends consistently and receive payments.
During the year, you buy shares at the average possible price - hence its name: "averaging".
Purchase with a discount
But the method described above is not always good. For example, if you didn’t buy Sberbank shares for 240 rubles, but set aside 5,000 rubles to your account, and bought shares when the quotes fell to at least 200, you would buy not 20 shares, but 25 (in fact, Sberbank shares are sold in lots at 10 pieces, so in both cases you would buy 20 shares - but it is important for us to understand the very principle of buying at a discount).
Therefore, a more correct strategy for making money on dividends would be to buy at a discount.
You should buy shares of reliable companies whose quotes have collapsed due to external reasons beyond the control of the business. For example, because of the sanctions imposed against Russia. Or due to seasonal changes. Your task is to buy more shares for the same money. After all, the size of dividends does not depend on the amount of money invested, as in the case of deposits, but on the number of shares in hand.
Purchase before the announcement of dividends
The company announces the payment of dividends after the meeting of the board of directors. It is there that the recommended amount of payments is decided. Then a meeting of shareholders is organized, where they confirm the decision of the directors or decide that it is better to leave the money in the company.
It seems like the best time to buy dividend stocks is right after that. But you are not the only one so smart 🙂 Thousands of eyes are watching the dividends. And as soon as there is positive news about the divas, shares begin to be bought up and quotes grow by leaps and bounds.
By the time the dividends are paid, the value of the shares adds up significantly, since everyone wants to receive them. And immediately after the payment, quotes fall, as speculators begin to get rid of shares that have become unnecessary.
This is called a "dividend gap". The larger the dividend, the larger the gap.
The example of MTS shares shows that after the payment of dividends on July 5, the quotes fell from 288 to 269 rubles. After that, a downtrend began. Those who bought shares of the company a few days before the cutoff are now forced to experience a drawdown.
Sale on cutoff day
Therefore, another way to capitalize on company dividends is to sell them on the cutoff day. For example, by acquiring the same MTS shares after their value fell shortly before the payment (there was a lawsuit from the FAS regarding roaming) for 250-260 rubles, you could sell them for 288 rubles. Profit - 18-28 rubles per share. It is quite comparable with the size of the dividends themselves - 23.4 rubles.
So you can buy stocks far in advance and sell them at the peak of their value - you will earn much more than just receive dividends.
Purchase after cutoff
Have you seen how stock prices fall after paying dividends? This is a great time to buy. If you want to invest in a particular stock and hold it for as long as possible, I advise you to skip the cutoff date and buy after. Buy more shares with the same money.
Many investors buy stocks in advance and sell them on the cutoff day following the previous strategy. But since they want to continue to own the shares, they buy them right after the dividend gap back.
Particularly cunning also open a short position in order to earn extra on a downtrend. But this carries risks - the stock may continue to rise if good news comes out or the company has good multiples.
Conclusion
Thus, there are several strategies for making money on dividends - from the simplest "buy and hold" to the complex, which includes buying early and selling on the cut-off day, followed by rebuying. You can reinvest the received dividends in order to increase the portfolio or, on the contrary, withdraw them to the account, feeling like you are living on interest. In any case, good luck buying with shares, and may the dividends be with you!
Read more, it's interesting!
Central Telegraph and its dividends of 37.5% per annum: is it worth…
Passive income is great. Especially when it is enough for something significant. Dividends from investing activities are an example of a good passive income that does not require regular efforts to generate it.
Source: pexels
Let me break the illusion right away: in order to live on dividends, you need to invest significant amount. Yes, there are no miracles. It will not be possible to invest 100 thousand rubles and earn 30 thousand monthly.
What to do if there is no large amount now? Not everything is lost! But don't expect quick results. To provide yourself with a reliable and sustainable dividend income will require some effort and discipline. Let's talk about everything in order.
How the dividend yield works
Discussing the dividend yield in full detail is a topic for a separate article, but for the sake of simplicity, the following rule can be followed:
Dividend yield = annual dividend divided by share price
Let's take Sberbank as an example. At the beginning of 2018, its shares were worth 200 rubles, and the amount of dividends per share was 12 rubles. That is, the dividend yield of Sberbank in 2018 would be 6% if we bought it for 200 rubles.
Sberbank has several billion shares in circulation. Accordingly, the more you buy, the more you receive dividends.
The advantage of dividends is that they can grow. Let us again turn to the largest bank in Russia for an example. In 2017, their shares could be bought for 150 rubles. At the same time, the amount of dividends in 2017 was only 6 rubles per share, that is, 4% per annum. But at the same time, 12 rubles from 150 is already 8%. That is, your earnings per share can grow over time. You can calculate on the dividend calculator how much you would have earned on dividends by the current moment. Not only Sberbank is available for selection, but also other Russian public companies.
It is important to know that earnings per share may fall. A sad example is Megafon, which has consistently paid dividends in the past, but in 2018 decided to do without them. The reasons for such a decision may be different, but dividend investors should take into account such force majeure.
Which companies should be selected for such a strategy?
It is not uncommon for a company to pay large dividends in one year and much less in subsequent years. For example, the company's business is not stable, and it has received losses. No profit - no dividends. Another option: the majority owner of the company is interested in withdrawing part of the capital, so large payments to shareholders were appointed. But how it will be in subsequent years is not clear. Therefore, such a company should not be considered as suitable for a dividend portfolio.
Conclusion: select financially stable companies with a transparent and understandable dividend policy in your portfolio.
Always pay attention to payment history companies. There is even a special term - dividend aristocrats. This is the name given to companies that increase the size of their dividend payments over a long period. For the US stock market, this period is 25 years. In Russia, this is more difficult. The Russian stock market is very young and not very developed. But, for example, Lukoil publicly states that they strive to be dividend aristocrats and try to increase dividend payments every year.
In addition to single companies, mutual funds and ETFs should be considered. Index ETFs are similar to mutual funds: they are diversified, as they hold in their portfolio all the companies included in the index at once. Be sure to pay attention to the commission of the management company. The largest ETFs like SPY (based on the S&P500 index) or DIA (based on the Dow Jones index) charge fees of less than 0.2%. If a fund or mutual fund takes more than 1% for management, then this is an occasion to think about whether you need it at all.
Be sure to include both Russian and foreign stocks in your portfolio. This will allow you to avoid political risks and crises in local markets.
Which companies consistently pay dividends?
As mentioned above, you need to pay attention to the history of the company's dividend payments, make sure that it has a stable financial position and a good dividend policy.
An example of Russian companies that consistently pay dividends:
Among American companies, there are those that increase the payment to their shareholders for more than 50 years! That is, investors could buy shares 50 years ago and receive more and more payments for their package every year. They are also called dividend kings(from English dividend king). Examples of such companies:
And these are not some small offices, but large international companies that consistently pay dividends and whose products are used by billions of people around the world.
How much do you need to invest to earn enough dividend income to live on?
We come to the most interesting question: how much do you need to invest in order to be able to live from dividends? The average dividend yield for US companies in the S&P500 index is about 2%. For Russian companies from Moscow Exchange index(in the past it was called MICEX index) the average dividend yield is about 4-6%.
Simple math: if you spend 50 thousand rubles a month, then you need to invest in Russian stocks 50 * 12 * 16 = 9600. That is, you should invest about 9 and a half million rubles in order to be able to live from dividends of 50 thousand rubles in month.
Huge amount, right? Therefore, it was said at the beginning of the article that the easy way - No. But discipline and the rule of compound interest come to the aid of the investor. Let's say you invest 10,000 rubles a month in stocks, and reinvest all received dividends into new stocks. Then, taking into account the annual payments of 6% and the growth of shares by 5% per year in ten years, your fortune will turn into:
| Year | Income from dividends, thousand | Status at the end of the year, thousand |
|---|---|---|
| 1 | 0.0 | 120.0 |
| 2 | 7.2 | 253 |
| 3 | 15.19 | 401 |
| 6 | 44.84 | 949 |
| 8 | 70.43 | 1423 |
| 9 | 85.38 | 1699 |
| 10 | 101.98 | 2006 |
That is, in 10 years your annual dividend income will be more than 100 thousand, and there will be more than 2 million rubles in your account.
Unfortunately, without financial planning in investments anywhere. Therefore, you will have to stock up on patience and discipline.
Remember about diversification and well-organized portfolio. Include not only single companies, but also mutual funds with ETFs. Those people or organizations that promise you the opportunity to quickly invest money and get rich are most likely just trying to deceive you.
conclusions
To live on dividends, you need either good start-up capital, or time and discipline. It is no coincidence that the great investor Warren Buffett constantly talks about the importance of discipline in investing:
Successful investing takes time, discipline and patience. No matter how talented you are or how much effort you put in, some things take time: 9 women can't have a baby in 1 month.
Losing money is easy. Always weigh your decisions and keep improving your financial skills.
The pursuit of dividends requires the trader to use special trading tactics that are fundamentally different from the usual trading options.
Trade high only with a leading broker
Actually, it should be understood that dividend strategies are designed for long-term traders or investors.
Popular dividend earning strategies
The first strategy with which we would like to start the review is a medium-term tactic with a payback of two to three months. The essence of this dividend strategy is to buy shares a couple of days before the register closes.
After the closing of the register, the so-called cut-off period begins, when the share, after paying a dividend, drops in value by the amount of the dividend. This drawdown, which is formed, is a working moment, and your goal is to wait it out. After the price of the asset returns to the starting point, you should sell the shares and take profits in the form of dividends.
However, it should be understood that in order to implement this strategy, you will need to choose a strong asset that is prone to constant growth and recovery. You can see an example of such a deal on the example of buying a Gazprom share a couple of days before the cut-off and profitable closing a deal a couple of months later:
The advantage of this strategy is the quick return on investment, and if you take into circulation shares with quarterly dividend payments, you can get a yield of 40 percent per annum.
Also, this option allows you to maximize the reinvestment of the income received, involving more and more new shares in circulation. If we talk about the disadvantages, then it is worth noting the fact that you can choose the wrong asset or get into a black band for the company, and the stock will continue to fall.
The second strategy is more long-term, and holding shares can be up to one year. The essence of the strategy is to buy shares after the cut-off and pay dividends. It is at this moment that the value of the stock falls sharply in price (by the size of the dividend).
However, as we know, companies that pay dividends are in great demand for investors and the price will begin its recovery growth. A share may be held until the next dividend is paid. You can see an example of such a transaction for Rosneft shares in the image below:
Unlike the previous trading tactics, almost all earnings fall on receiving income from the exchange rate difference. However, if you hold the position as long as possible in the market until the next dividend is paid, then you will not lose money at the cutoff.
Also, in the process of work, you will have a minimum drawdown, unlike the first option. If it speaks of shortcomings, then you are not immune from force majeure in the company and a strong decrease in the value of shares, the loss on which does not cover the dividend yield.
The third strategy most commonly used by investors is called Buy and Hold. The essence of the strategy is to select the shares of the leaders of their growth with inexhaustible potential. For example, Gazprom will trade gas for at least another 100 years, so the dividend income from it will last a lifetime.
Once you have chosen the leaders with high dividend yields, they are bought and held for decades. Since dividends received from shares should generate income, the investor on an ongoing basis reinvests in new shares.
Actually, the purpose of this approach is to create an additional source of income due to dividend yield, and not exchange rate differences. This technique is used by such a famous investor as Warren Buffett.
How to minimize the risks from a dividend strategy
For the first two strategies discussed above, you can use the hedging method. What is it? For example, if you decide to catch the dividend yield on the first strategy, but are afraid that you will lose a lot after the cutoff, you can buy a futures for the same stock only for sale.
Thus, you will form a position as neutral as possible to the market. However, in the process of forming a position, the volume in monetary terms must be the same, because otherwise you will receive either profit or loss on one of the instruments.
You can also hedge the position, for example with a CFD contract with a forex broker that does not adjust for dividends.
In conclusion, I would like to note that dividends are not the main source of income for speculators on the stock exchange, therefore, in order to get maximum income with minimal risks, you must form a portfolio of shares and diversify risks as much as possible.
Not all brokers accrue dividends when buying shares, some companies use purely speculative trading options, well-known brokers pay dividends