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Old 07-12-2015, 03:30 PM   #61
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Occasionally, a stock may issue a special dividend that is huge or several percent of its price. It usually happens when the company holds too much cash, and shareholders beat that cash out of them. Ford did that once while I owned it. No way that such a big dividend would be missed in the stock price the next day.
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Old 07-12-2015, 03:38 PM   #62
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I remember years ago fidelity magellan had a 20% distribution when they re- mapped the portfolio
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Old 07-13-2015, 11:51 AM   #63
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well now you are aware of it. see what you learn here . here is the finra rule requiring the offset .


5330. Adjustment of Orders
Thanks you, but this is not setting a price. This is adjusting an order that has been entered for a transaction that is caught up in a dividend event. Not even close to the same.
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Old 07-13-2015, 01:03 PM   #64
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as the article I posted above explains reducing the bids is effectively re-setting the price .


"because the quote of the previous day's closing trade AND the bid and the ask of all outstanding orders are also reduced (unless placed with a Do Not Reduce restriction) by the exchange, plus the fact that the net asset value of the stock is now less (by the exact amount of the dividend), when trading begins on the ex-date the effect is usually a reduction in price approximating the size of the dividend."
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Old 07-13-2015, 01:52 PM   #65
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as the article I posted above explains reducing the bids is effectively re-setting the price .


"because the quote of the previous day's closing trade AND the bid and the ask of all outstanding orders are also reduced (unless placed with a Do Not Reduce restriction) by the exchange, plus the fact that the net asset value of the stock is now less (by the exact amount of the dividend), when trading begins on the ex-date the effect is usually a reduction in price approximating the size of the dividend."
I appreciate what you are saying. However, I categorically reject that the price is being set. Each of those outstanding orders had their price set by the buyer and the respective seller. If the shares go ex-dividend while the order is in play, the seller is just receiving some of the purchase price agreed to via the dividend payment. It isn't anymore complicated than that. What happens with the resumption of trading is between willing sellers and buyers. The exchange doesn't set anything.
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Old 07-13-2015, 01:56 PM   #66
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well you were wrong about that . they certainly are adjusted automatically .


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as the article I posted above explains reducing the bids is effectively re-setting the price .


"because the quote of the previous day's closing trade AND the bid and the ask of all outstanding orders are also reduced (unless placed with a Do Not Reduce restriction) by the exchange, plus the fact that the net asset value of the stock is now less (by the exact amount of the dividend), when trading begins on the ex-date the effect is usually a reduction in price approximating the size of the dividend."

I am only splitting hairs here because you have backed off your initial statement saying I "was wrong about that" when I said the closing stock price was not automatically adjusted down. Your statement above also says "usually" and "approximating" not automatically. And now you have changed the words to "effectively" instead of "adjusted automatically"
Everyone knows there will be automatic downward pressure on an ExD stock. Its the mechanics we were discussing.
FWIW- The book is now closed on my AILLL example. Last trade July 7 at $26.24, with last Bid 25.95. Went exD July 9. Bid and Ask price as your article mentioned did reset bid/ask both. Bid price went down to 25.55 and ask was 25.85 Price went unchanged 3 trading days at $26.24 until a 400 share transaction occurred today at $25.75.
So it did not immediately adjust... Bid/ask immediately adjusted but not to the price that sold. As I stated, nobody is debating downward pressure, but in relation to the actual previous closing price Jim's analysis was correct. Your article is speaking in more general terms, but in my interpretation it supports Jim's explanation. He just used more technical terms that the writer did not want to use.


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Old 07-13-2015, 03:57 PM   #67
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What happens with the resumption of trading is between willing sellers and buyers. The exchange doesn't set anything.
This is certainly my understanding. I had 20 years in the industry. Exchanges generally don't set prices but facilitate buyers and sellers. You might be able to debate what the word "set" means. But I would say it was the buyers and sellers who "set" the price. Anyway, sounds like we have a little too much time on our hands?
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Old 07-13-2015, 04:25 PM   #68
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This is certainly my understanding. I had 20 years in the industry. Exchanges generally don't set prices but facilitate buyers and sellers. You might be able to debate what the word "set" means. But I would say it was the buyers and sellers who "set" the price. Anyway, sounds like we have a little too much time on our hands?

I plead guilty as charged and beg leniency from the court! I have been "under the weather" the past few days and I have been confined to the couch. My GF wont even come visit. I am hoping to get more of a life tomorrow assuming I feel better and round out a foursome on the course. The issue has been close to debating over whether it is 110 degrees outside or 111 degrees.


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Old 07-13-2015, 04:57 PM   #69
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The issue has been close to debating over whether it is 110 degrees outside or 111 degrees.
I would like to nominate the previous "what happens ex-dividend" messages as the least interesting exchange of information of 2015--peppered with the most unexpected and ironic passion.
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Old 07-13-2015, 05:22 PM   #70
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I would like to nominate the previous "what happens ex-dividend" messages as the least interesting exchange of information of 2015--peppered with the most unexpected and ironic passion.

My shameful passion has been from watching how my illiquid preferreds trade which is very unusual. I guarantee you one thing, Sam, if the title of this thread was started in certain other website's Income and Investing section (and it has repeatedly); the endless debate would never have devolved into this as the heated argument would have remained on task.


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Old 07-13-2015, 05:32 PM   #71
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M* Dividend Investor newsletter.

This month's M* Dividend Investor Newsletter had very good article about dividend investing. This is snippet of the cover article. My apologies for the formatting. You can read the whole thing here and sign up for a free trail.

Given the various practical advantages associated
with dividends, it would not be unreasonable for
equity investors to accept lower total returns than the
market average in order to get them. However, history
tells a different story: The aggregated virtues of high yielding
stocks have led them to outperform low- and
no-yield stocks over time.

Though this observation has been demonstrated in
numerous academic studies, lately I’ve started
to evaluating raw data myself. Among the data sets
made available by Dartmouth professor Kenneth R.
French (best known for the Fama-French asset
pricing model) are returns for U.S. stocks based on
their dividend yields at one-year intervals. This
treasure trove of data and many others is available
free at http://mba.tuck.dartmouth.edu/pages/faculty/ken.french/data_library.html,
and I’m still coming up with ways to evaluate the past performance
of dividend-paying stocks. But it’s not too early
to share a few of the strongest conclusions
Invested at the average return of the U.S. stock
market, a dollar at the end of 1927 became $3,013 by
the end of 2014—an average annualized return of
9.6% a year. That in itself isn’t surprising, but those
who consider dividends the province of has-beens
should note the positive relationship between relative to the standard deviation of returns—provides
a good yardstick for considering risk-adjusted performance.
The higher the Sharpe ratio, the higher the
return that is earned relative to the volatility involved.

Exhibit 2: Returns and Risk by Yield
Column 1 Total Return Percentage
Column 2 Standard Deviation %
Column 3 Sharpe Ratio

Entire Market 9.6 18.8 0.33
Non-Payers 8.5 30.1 0.17
Lowest 30% 9.1 19.8 0.28
Middle 40% 10.4 17.9 0.38
Highest 30% 11.1 20.0 0.38
Quintiles by Yield
Lowest (non-zero) 9.1 20.6 0.27
Quintile 2 10.0 18.4 0.35
Quintile 3 9.7 18.7 0.33
Quintile 4 11.6 18.7 0.44
Highest Yields 10.9 20.9 0.35
*Monthly data from Dec. 1927 through Dec. 2014. Total returns and standard deviations are annualized. Source: Kenneth R. French, Morningstar analysis.

Here we see that the highest 30% of stocks by yield
provides higher total returns than the middle 40%,
the middle beats the lowest 30%, and all the dividend
payers top the nonpayers—a slightly expanded
version of the outcomes graphed in Exhibit 1. The
nonpayers also had the highest standard deviation of
returns, which isn’t much of a surprise. However, the
highest yielders also have a standard deviation (20.0%
annualized) that is slightly above the market average.
The Sharpe ratio suggests this additional volatility
is worth taking, but the least volatile segment—the
middle 40% of yields—offers a similar risk/reward
trade-off (a lower annualized return than the high
yielders, but less volatility too).


There is a bunch more info for the data loving folks. For the rest of us dividends mean higher returns and less volatility. If you are in the accumulation phase the lower volatility may not be that important in the withdrawal phase I think it is very important.

So what about DVY and other dividend oriented funds. I guess my answer is that aren't particularly good funds. For instance, I've never understand the rational for DVY.
To me a far better dividend fund is Wellington.

The M* dividend investor newsletter has been around for 10 years and the real money portfolio is up 1.8% per (as of Jan 2015) over the S&P more importantly the Beta of the portfolio is .73. My portfolio (which relies heavily on Josh Peter picks) has had similar performance. Despite the drag of my large Intel holding.
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Old 07-13-2015, 06:29 PM   #72
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T
The M* dividend investor newsletter has been around for 10 years and the real money portfolio is up 1.8% per (as of Jan 2015) over the S&P more importantly the Beta of the portfolio is .73. My portfolio (which relies heavily on Josh Peter picks) has had similar performance. Despite the drag of my large Intel holding.
Josh has admitted to having made some mistakes along the way, like going into the 2008 crash with a healthy dose of financial-sector equities that ended up cutting their dividend aggressively and yet he still came out ahead. So I think it is a testament to the strength of this strategy. Of course, back in 2008, the indexes were also heavily invested in the financial sector, so Josh may have not been outsmarted by the market after all.

Still, I wonder. The core of my US large cap equity allocation is composed of dividend-paying stocks. Low interest rates have boosted the appeal of dividend-paying stocks, so it is perhaps no surprise that they have outperformed in recent years. With that in mind, I have started redirecting new funds to a plain US equity index fund over the past year.


On another note, I really dislike this often black and white debate between income investors and total return investors. There is a huge grey area in between. My dividend-producing portfolio is sitting on huge unrealized capital gains, so I not only get income, I get growth too. And plenty of total return investors live solely on the income produced by their portfolio.

It seems like the main argument against dividend investing is that price matters more than income. It is hard to disagree with that. I don't think that KO for example is a buy at any price. But I don't see a lot of index investors worry about price much. In fact, discussions about market valuation are often DOA unless one wants to be labeled a dirty market timer. In a few decades, the story goes, price won't matter anymore because the market will be much higher, so tune the noise out and keep buying. If maximizing total return is truly the goal, shouldn't price be the number one concern for non-income investors?

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Old 07-13-2015, 07:43 PM   #73
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... So what about DVY and other dividend oriented funds. I guess my answer is that aren't particularly good funds. For instance, I've never understand the rational for DVY.

To me a far better dividend fund is Wellington. ...
But if a general broad based fund/ETF, which has as its stated purpose to hold dividend stocks (DVY) can't be used as a proxy for this strategy, then I think we are deep into cherry-picking season. I could just as well say that BRK/A is a better rep than SPY, as it pays zero divs (and beats them all in total return).

Wellington is 35% bonds. And actively managed.

Quote:
Equity component: Fundamental research identifies high-quality large- and mid-capitalization companies in out-of-favor industries. These stocks typically offer above-average dividend yields, low valuation multiples, and improving fundamentals.

It sounds like divs are an product of their choices, rather than what they seek out?

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...
It seems like the main argument against dividend investing is that price matters more than income. ... If maximizing total return is truly the goal, shouldn't price be the number one concern for non-income investors?

I can only speak for myself, but to me total return (and some efficient way to invest in it and be diversified) is everything. Price? BRK-A and BRK-B are priced very differently, but are essentially twins.

Did you mean valuations? OK, but that's getting into timing, which is a different discussion.

edit/add: And to be clear, and again, only speaking for myself, I'm not arguing against dividends, I'm just asking if they really outperform in recent times in a broad based, diversified fund that I can easily invest in.

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Old 07-13-2015, 08:31 PM   #74
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Did you mean valuations? OK, but that's getting into timing, which is a different discussion.

edit/add: And to be clear, and again, only speaking for myself, I'm not arguing against dividends, I'm just asking if they really outperform in recent times in a broad based, diversified fund that I can easily invest in.

-ERD50
Price and valuation are connected through earnings (correct me if I am wrong), so I mean both.

I am not trying to argue for dividends either or convince anyone. As my post shows, I am not sure what strategy is going to be superior in the future and I am hedging my bets. But I dispute the assertion that I am making a "costly mistake" (as per the webcast) by building my portfolio around a core of dividend paying stocks. As always, time will tell. Since many of the stocks I own form the core for forum favorites, Vanguard's Wellington and Wellesley funds, I won't be the only one going down.
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Old 07-14-2015, 02:26 AM   #75
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But if a general broad based fund/ETF, which has as its stated purpose to hold dividend stocks (DVY) can't be used as a proxy for this strategy, then I think we are deep into cherry-picking season. I could just as well say that BRK/A is a better rep than SPY, as it pays zero divs (and beats them all in total return).

Wellington is 35% bonds. And actively managed.
I think the problem is that DVY algorithm is a lousy one.
Here is what M* says about it.
Quote:
While its yield is attractive, this fund isnít pretty.

IShares Select Dividend DVY offers an attractive yield but canít overcome its awkward methodology, bulky size, and high expense ratio. This exchange-traded fund tracks 100 high-yielding U.S. stocks and weights them by dividend per share, resulting in mid-cap and deep-value tilts. Despite the higher yield, the fund has underperformed both the mid-cap value Morningstar Category and the S&P 500 since its 2003 inception. The fund is best used as a satellite holding to boost the yield of a core portfolio.
It seems me that more algorithmic approach you use for ETF the more you get into potential trouble. IMO these strange ETF that rely on momentum, data mining or whatever, actually combine the worse feature of active and passive management. The inflexibility of an index fund, with the likelihood of a bad programming/criteria.

Morningstar did an interesting analysis between the mostly passive ETF Dividend Appreciation ETF VIG and the actively managed Dividend Growth VDIGX. VIG has a lower expense ratio .1% vs .31%. And have basically the same philosophy buy stocks of companies with growing dividends, but on virtually every measure the actively managed did better. VDIGX also beat the S&P 500 over 10 and 15 years periods and do so with significant lower volatility, with a sharpe ratio of .38 the same as Josh Peters findings.

The manager for VDIGX is also part of the Wellington Group and has >$1 million of his own money in the fund. Turns out one of the best ways to find out if active fund will one of the 25% that beat the index funds is if has two criteria.
1. Expenses in the bottom quartile
2. The fund manager has lots of their own money invested in the fund.

I'm not sure why it is cherry picking. Buy stocks that pay dividends but don't buy the ones with the highest yield, because they often are trouble.
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Old 07-14-2015, 08:14 AM   #76
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I would like to nominate the previous "what happens ex-dividend" messages as the least interesting exchange of information of 2015--peppered with the most unexpected and ironic passion.
Agree. In retrospect, a little surprised I responded. Can we erase some of these?
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Old 07-14-2015, 08:26 AM   #77
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Agree. In retrospect, a little surprised I responded. Can we erase some of these?

Sorry we cant for the reason below....

Those who do not remember the past are condemned to repeat it.

George Santayana




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Old 07-14-2015, 08:41 AM   #78
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Some good recent posts (other than mine). Especially agree that the debate should not be "black and white". Total return is obviously the correct metric but there are many ways to achieve success.
Also agree that once retired, div stocks might be more convenient, less volatile and give a better risk adjusted reward profile. I think we often lose site of the fact that div paying stocks are often some of the more well run, mature, businesses with wide moats. Not surprising they have done so well, but can we be sure it is because they pay dividends?
I also disagree that div stocks have been bid up to unsustainably high values due to low interest rates. My portfolio is yielding historically high yields and is about 1% point higher than in 2007. Accordingly, I don't expect much effect due to the inevitable increase in rates. Granted my portfolio is 100% CDN and heavily weighted to banks, telco's, and pipes.
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Old 07-14-2015, 09:38 AM   #79
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I would like to nominate the previous "what happens ex-dividend" messages as the least interesting exchange of information of 2015--peppered with the most unexpected and ironic passion.
And whatever ranks as #2-#99 must be close!



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Agree. In retrospect, a little surprised I responded. Can we erase some of these?
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Sorry we cant for the reason below....

Those who do not remember the past are condemned to repeat it.

George Santayana
And repeat it, and repeat it, and repeat it ...

as has been repeated many times here: "It's what we do!" and the variant "What'll you do all day, indeed!".

A more serious reply to clifp is on its way after some research....

-ERD50
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Old 07-14-2015, 11:06 AM   #80
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I think the problem is that DVY algorithm is a lousy one. ...
OK, you don't like DVY. That's fine, but I still feel that since that is a common index for dividend producers, it makes the most sense to use as a benchmark. But I'm open to other ideas.

I'll take this one out of order:
Quote:
... I'm not sure why it is cherry picking. Buy stocks that pay dividends but don't buy the ones with the highest yield, because they often are trouble. ...
I was referring to Wellington. I just don't think an actively managed fund that is 35% fixed income is a reasonable benchmark to measure dividend payers versus the broader market. I only meant cherry-picking in that I could go and select some actively managed fund that looked good historically, and claim that as the benchmark for 'the broader market'.



Quote:
Morningstar did an interesting analysis between the mostly passive ETF Dividend Appreciation ETF VIG and the actively managed Dividend Growth VDIGX.

...have basically the same philosophy buy stocks of companies with growing dividends, but on virtually every measure the actively managed did better. VDIGX also beat the S&P 500 over 10 and 15 years periods and do so with significant lower volatility, with a sharpe ratio of .38 the same as Josh Peters findings.
I feel this is getting into an active versus passive discussion, rather than div-payers versus the broader market. But I decided to look at these two and check their performance, and...

OK, clifp, you got me ( watch out - it's a trap! ).

Again, I'm a little hesitant to turn to actively managed funds in this comparison, but let's go. Here's some total return charts for SPY, VDIGX, and SPY, VIG. VIG only goes back to ~ May 2006 and clips the data, so I ran them separately - and this total return source only seems to go back to Jan 1999 for older funds.

So what did I find?

Well, the chart of VIG versus SPY (May 2006 to current) shows a slight advantage for VIG I'd say, with VIG generally leading. And zoom in on the Oct 2007 peak to March 2009 trough, and you see VIG held up a bit better ( ~ -46% drop versus ~ -54% for SPY). But we can't compare the 2000 crash. And, I got the impression you were not a fan of VIG, and preferred VDIGX?

PerfCharts - StockCharts.com - Free Charts

So what does VDIGX tell us? Well, this chart, going back to JAN 1999, shows a slight advantage to SPY overall. However, like VIG, VDIGX did hold up better in the 2007 crash (~ -44% versus ~ -54% for SPY). Go back to March 2000-Oct 2002 though, and there is really very little difference (dropping ~ 43-44%). You can see that VDIGX actually peaked a bit later than SPY, so if you go from VDIGX peak, its drop is actually worse than SPY (~ -46%).

PerfCharts - StockCharts.com - Free Charts


Make of this what you will, but I just don't see anything giving these div-payers providing a clear advantage. And I'd like to re-address the comments about the past 15 years being a low interest rate period. Yes, true, and it could mean something. But I will re-iterate my 'pragmatic' comment/view on this - it seems that some posters are telling us these div-payers will be significantly more stable in a downturn. But we see that isn't the case. Does it matter what the environment is? They don't seem to be getting the protection they seek. Perhaps they should seek that protection elsewhere? A higher fixed income allocation? More TIPS? Annuitize a portion of their holdings?



OK, the 'trap'...

Here's the odd thing. After researching these, and finding a slight advantage for VIG and VDIGX in the 2007 crash, I noticed something funny:


VDIGX Yield: 1.89%

__VIG Yield: 2.23%

__SPY Yield: 1.96%

VDIGX has a lower yield than SPY? And VIG isn't much higher (~ 14% increase). So what is all this about high dividend payers? I'm confused!

-ERD50
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