Summary
- Dividend investors seeking to optimize income from their investments should look at ex-dividend dates and time their purchases accordingly. The question is, how?
- Analyzing the historical performance of AT&T, I'll compare total returns around the previous 51 individual ex-dividend dates across three strategies.
- Is it best to forfeit the next dividend payment and benefit from a lower stock price in the beginning, or should you grab that next dividend payment?
- Are investors bidding up the stock as the ex-dividend date approaches?
- I will also show how much more or less in dividends investors can earn when buying the stock post the ex-dividend date.
Dividend investors seeking to optimize income from their investments should look at ex-dividend dates and time their purchases accordingly.
Timing the market is difficult. Timing to maximize income from dividends, however, is much simpler. Buying a stock before the ex-dividend date qualifies you for the next upcoming dividend payment, whereas foregoing the next ex-dividend date should, in theory, give you a better entry price point, as the stock is expected to trade with a discount on the ex-dividend date.
One of these stocks is high-yielding AT&T (T). Many love it, many hate it, but no matter what's your opinion, the fact that it is still paying a juicy 5.5% dividend yield is "real". Also "real" is the fact that this dividend remains safely covered, and this stream of regular and massive income can help investors weather volatility-induced markets. Investors can park their money in AT&T, a stock which does not seem to move in any direction, and then redeploy income into beaten-down stocks in case the trade war continues.
Investors in AT&T's stock have been treated to a superb year. The stock, having undergone two disappointing years, has rallied over 30% this year with total return amount to almost 38%, thanks to its strong dividend. The downside of this is of course that unless you invested into AT&T for stock appreciation, the rapidly declining yield has somewhat dampened income potential. It makes a big difference whether you can invest at a 6.5% yield or at 5.5%, especially with a stock that is only showing anemic dividend growth.
Next week, precisely on October 9, AT&T is going ex-dividend, and following the strong YTD performance of the stock, an opportunity that allows to buy the stock cheaper by forfeiting the dividend may be looming around the corner.
(Source: AT&T Investor Relations)
Let's now turn to the analysis. With such a reliable dividend payer and regarded by many as a pure income play, are we observing investors buying the stock in the run-up to the ex-dividend date? Are we observing people buying the stock after the ex-dividend date drop? Let's find out!
