Well, let’s talk about one of my CFD trades, the topic of trading dividend strategy. In today’s market, where the interest rate remains very low, “despite the dividend cut,” the portfolio is still likely to have positive leverage.
There are 2 ways to profit from dividends using CFDs’ the simple way and the hard way.
I like to stick to my OSUS-P (Implicit & Stupid & Persistent) principles in everything I do” as I tend to come up with creative and innovative ideas every now and then, it’s better to stick to simple ideas and just repeat it every day.
– Simple command: follow yield
A simple strategy uses leverage to buy into stocks that pay a higher dividend yield than your cash.
Remember, you don’t pay full interest on your position – depending on your particular stock, let’s use a margin of 90% for example.
· Use the average Australian property trust company as an example
· Assuming you bought $5,000 worth of shares
· Less than 10% margin which is $500
· to pay interest on $4500
· Average interest rate is around 6.8%
· It is divided into 8%
· Interest paid: $306 annually
· split to receive: $400
· The net profit in this case is $94
Of course share prices go up and down'” but in the current low environment, you can use CFDs for positive gearing” which means that the dividend will cover the interest.
You are mindful of several factors;
1) Variable interest'” CFDs are based on variable rates, this way they can rise very fast and the positive gearing effect will disappear the fastest
2) The interest will go up as the underlying positions go up ‘” that’s right, this means your financing price is not certain ‘” as the price partition goes up, the cost will go up as well
3) Special dividends can bring “special dividend” opportunities, but in most cases, once a special dividend is paid, the share price tends to drop somewhat, often much more than the actual amount of the dividend.
4) Franking Credits’ Remember, franking credits are not passed on in CFDs, so if you’re looking for tax-efficient dividends, this won’t work.
I have applied this strategy several times, mainly to property trusts, but this strategy was suspended in early 2009 as many companies increasing the number of properties suspended their distributions, now the markets seem to have stabilized a bit, I think it will be a good time to implement this strategy again.
Difficult Strategy ‘Trade High Dividend Stocks’
The strategy is more active to trade regularly’, so called Divided Capture Strategy or Divided Exploitation Strategies.
Strategy based on the theory that stocks, especially large cap stocks with good performance levels, usually go up before the ex-dividend period, so traders focus on their business activities around the ex-parte date in these companies
The strategy depends on what you want to do towards the ex-dividend date “” for me, if the return is substantial, say 10% to 20% in the share price (which equates to 100% to 200% in your margin. ) I will take the profit instead of waiting for the dividend.
Some wait to be divided; then your net income is based on it;
Share Price increase + dividend – Loss on ex-dividend date.
The latter (ex-dividend loss) is a real wild card ‘” recently, I bought a stock, the stock rose 10% in the last 3 days before the ex-dividend date, the dividend was 3.5% (semi-annual dividend), the stock dropped 5% in ex-dividend day. So the net return was 10%+3.5% – 5% = 8.5%, not a bad return in 3 day trade.
The real problem is ‘”if they drop more, then you will end up with a net loss position. Conversely, I have also been lucky twice, where the market contracted on the day of the ex-dividend, and I received both the dividend and capital growth. However, this does not happen very often on the same day. , and exceptional market convergence is required to achieve this date.
For even more aggressive traders, they will take a profit and then enter a short before the expiration date: this has worked for me many times.
The real reason dividend trading is a liquid strategy, this won’t work on any stocks, and it won’t work on relatively low yield stocks as it doesn’t justify the effort.
In my experience, it has worked very effectively in financial trees, especially for banks, and I am also beginning to see that it can also work for certain trusts, once the currency market is established.
Most investors apply this strategy to large banks, but this means that the choices are relatively limited when it comes to trading opportunities, and you can only apply the strategy twice a year depending on their dividend payment date.
