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Capstead Mortgage Corp. Message Board

  • DalaiTom DalaiTom Apr 21, 2002 11:46 AM Flag

    Re: It's all fact?

    Not quite. You said:

    First, I'm sure you are aware that the dividend amount is automatically deducted from the stock price at the close of business on div date.

    Actually, the stock price is dropped by the dividend amount on the ex-dividend date, not the dividend date. I just wanted to point that out so as any "newbies" wouldn't get misinformed.

    May all be well and happy.
    Tom

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    • Its actually even more complicated than that. The specialist will open a stock in one of several ways:

      1) If there are no bids or offers, he will open it at the previous close less the dividend.

      2) If there are bids and offers at a limit price, he will open it at the price that clears the maximum amount of shares with his potential participation in either selling or buying depending on what he feels will make an orderly market. He is supposed to deduct the dividend amount from the good-till-canceled orders, so that they don't automatically get tripped over a large dividend payout.

      3) If there are market on open orders, he will match these aginst the bids and offers as per #2. If he participates, he will charge a premium on a sale and a charge on the bid to cover his risk. Again, he will attempt to make an orderly market. If there is too great an imbalance, he will advertise the range at which he is going to open the stock in an attempt to get the contra parties.

      You can usually expect the price drop on open to be the dividend amount on an ex date, but it is a bit more complicated than that overall.

      • 2 Replies to billgatesisevilus
      • You do seem to have an idea how the div adjustments work. I have always been confused on that. Obviuosly, I see the downward pressure on a stock on Ex-div day (and a little before), but in order for the price to actally drop, people have to be willing to sell qt that lowered price. If there are market orders, I can see them filled at the lowered (prev. price - Div), assuming that there will be buyers at that price. Limit orders above that would not get filled. Assuming that people knew this, I would think that they would set a lmit in the middle, knowing the downward pressure, but still to get something better (than previous price - Div), at that level there is no point in getting the div (and it would generally be taxed). If more people used limit orders (on selling) then I don't think the drop would be as great. I just don't see how they can "Set" the price to be lower, or why they should. By the way I almost never use market orders anymore, unless I really want a stock.

        I have thought that maybe selling half after the majority of the run up but before the drop would lock in 1/2 profits. Then on Ex div day, wait to see if the drop is more or less than the div. If more then buy the 1/2 back, if less then either just hold on or sell the rest. If you end up with extra $ then put it back into another Reit that has dropped more than the div. Just an idea I am playing with, cause I never know f it would be good to sell when the price is nice and high (and may drop more than the div). Just some ?'s and comments

      • But why would you play that game?

        I mean: what are the chances of selling just in time to get the dividends and avoid the price drop? Compare that against the chance of the price raising for a company with:

        1).- EPS = $5.72
        2).- P/E < 4
        3).- Div. Yield > 29

        Just compare that with DD, GM, GE, IBM, JPM, PFE, AXP, C, and all other money making blue chips. CMO is making and giving MORE per share than any of them. We invest BILLIONS in them only to discover that they are cheating us, underperforming, "arranging" their results, etc. We pay premiums on the basis that in years to come those blue chips will ACHIEVE the results per share that CMO had last year.

        Let's be realistic here: even if interest rates double (something really unlikely to happend this year) and their earnings are reduced to half. CMO would show MUCH better results than all above.

        And to top that: if you sell you'll probably end up paying capital gains tax AND dividend tax. Plus trading commissions.

        Stop punishing those who don't deserve it. This company is doing a great job and they deserve better valuation. I'm here for the long term, so if ex-div. shares drop I will be on the "accumulating" side.

 
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