Why is it that there will be an earnings announcement, yet no announcement of an ex-dividend date prior to the date. Is KMR not overdue for the announcement of their quarterly dividend? The date posted on the KMR web site is from last quarter.
Yes it has. They announced the distribution shares per shares owned = 0.022146. We know that the KMR distribution was $1.05 per unit. Therefore the average price used to calculate KMR distribution was $47.4126 (= $1.05/.022146). KMR's price was rising steadily over the calculation period (as steadily as any stock-like price rises over a 10 day period). The first day had the lowest day of the 10 ($46.89), and the highest was on the 9th day ($48.06)
Fine analysis, however, it simply proves that there is no way to avoid a flawed/unfair dividend payment mechanism in KMR.
The flaw, i.e., you are buying KMR share, at a higher price with your dividend money, remains.
The ideal would be get 1.05 in cash and then buy KMR at lower price on the ex-dividend date, rather than get shares from the Company at a pre-ex-dividend date price.
Abter: Thanks again. I think you have explained to me why my approach is a good one but not the only one that would accomplish my goals of: 1. limiting my holdings of KMR, 2. monitizing the dividends. I believe you are saying it would work either way because the way I do it, selling a slightly smaller number of shares at a higher price, would be the equivalent of selling the full number of shares at a lower (that is, minus the dividend dollar amount) price. The product of the two comes out the same (obviously less commission which is negligible in my case) if you presume the difference in the selling prices is the dividend amount, and that I correctly calculate the number of shares to sell. Please correct me if I misunderstood your conclusion.
If I understand you correctly, I am very pleased with that analysis. I think my preference to sell pre-ex div date works best for me because by the time I sell I have a very good idea what the dividend factor will be so I can choose to sell above that price and generate a slightly higher return. I don't risk losing that price over the next 2 weeks, and my goals don't include the need to time the market. As I've noted in a previous post, KMR frequently trades well above the 10 day average price (less the dividend amount) during the post-ex period, as it is doing right now. But, given my holdings of KMR and the fact that on Aug. 14 I will receive back the shares I just sold, I am more than happy to see the price go up, although as I've also noted, it wouldn't be unusual for there to be a downward movement in the following weeks.
Anyway, I really appreciate your work as I think I understand better that my actions are price neutral. Also, your analysis suggests there isn't really anything wrong with the concept of KMR issuing a stock dividend every quarter and assigning a dollar value that the market uses as a dividend rate for KMR. Of course, that leaves us no better off in trying to explain the KMP/KMR price differential: in fact, that differential looks just as irrational as ever!
typos and observations:
first, my analysis was for an initial holding of 1000 units (not 100...thats just a sloppy typo by me). Probably many other instances of poor grammar and/or spelling.
Second; there is nothing here especially unique to KMR being an I-share. The same basic situation occurs with a cash-paying dividend company. The price of the investment falls by about the amount of the dividend on the x-div day. Except for non-dividend the market shifts, you are just as well off before the dividend date as after it (with the dividend in hand). In retrospect, my spreadsheet noodling shown me (the hard way) an old truth: you cannot game the market system by buying and selling right around a dividend date. You might find a particular angle based on taxes, but the market figures that out as well...your tax situation has to be different than the average tax situation that the market as a whole faces in order for there to be some sort of market fluke that you can pick up on. by round-trip trading right around dividend time.
I finally did some basic spreadsheet analysis, and conclude the idea of selling your KMR dividends before you get them does not offer any advantage...or disadvantage. Whether selling your KMR dividends before the ex-div date or after you get them, you have essentially exactly the same amount of $$, except for market changes occurring between the ex-div date and the payment date that have nothing to do with dividend-related price drop.
Fact: KMR calculates the dividend (the # of shares div/shares owned...call this "div-per-share") using the closing prices of the 10 market days BEFORE the x-dividend date. Therefore, at 3:55pm of the day before x-dividend you have a DARN good estimate what the div-per-share will be; you know how may shares you will get if you simply ride it out.
Fact: if you calculate the number of shares you will be getting from the dividend, and sell them before the x-div date, you will get fewer share in dividend. Why? If you sell some on the day before the x-div day, you will own fewer shares on the date of record...and hence get fewer dividend shares. In my analysis I roughly correct for this by selling only 98% of the shares you calculate you will be getting if you don't sell...that pretty much keeps your amount of shares at the end of the day constant. A more precise % "hold back" would change this analysis only slightly. To calculate as precisely as you can, estimate the yield for the quarter (I am estimating 2%), and sell (1-quarterly yield%) and you will hold your # of shares very close to constant.
All my numerical example is for the case where you go into this owning 1000 shares of KMR.
Alternative 1: the "sell before the price drops" strategy. Just before the close of the day before x-div day, sell 98% of the shares you anticipate getting if you do NOT sell. Assume you sell at the closing price of the day before the x-div day. [a trivial point...I also assume you can sell any precise # of shares you want....such as the 21.70337 shares you would have sold on July 28. I know you can't sell fractional shares, but this keeps the math precise].
On the payment date you then get just about the right # of shares as a dividend as you sold, and you are back where you started with some $$ in your pocket.
Alternative 2: Wait until you receive your dividend shares, and sell them all at the closing price of the payment date.
So how do you do? In general, you end up the same amount of cash and same # of shares. Why? In the pre-sale strategy, you can only sell ~98% of your expected dividend shares in order to keep your # of shares constant in the long run. You get ~2% more for your shares than if you wait and sell the real dividend shares after you get them at the price then, but you are selling fewer shares. It is essentially a wash.
Historical data. Say you owned 100 shares, and did this for the most recent 6 dividends paid (the one to be paid on Aug 14, '09 can't be used yet...we don't have the closing price on the payment date).
If you follow the pre-sale strategy, after 6 cycles you would own 999.8775 shares (that 2% holdback isn't perfect), and would have $6,001.59 in your pocket.
If you follow the wait-and-sell-when-you-get-them strategy, you would have exactly 1000 shares, and would have received $5,993.27 in cash.
Over 6 quarters, that is a 0.14% difference in the amount of cash you get by the pre-sale approach, and end up with 0.012% fewer shares.
The only reason it isn't exact is a) 2% is only an estimate, and b) market forces and day-to-day noise mean the price after the payment date not always be less than the pre x-div price by exactly the amount of the KMP dividend. The x-div date and the payment date are about 2 weeks apart, and stuff can happen in 2 weeks that move prices.
Please understand the main reason I'm doing this is to monitize the KMR dividend and to avoid increasing my number of shares of KMR. If I sold all my shares before ex-dividend that would then just be a strategy for presuming KMR will be lower ex-dividend than the $1.05 amount (which I would venture to say has been true at some point every quarter since I've owned KMR). That is purely a market timing play which I have no interest in engaging. Selling only my expected dividend shares leaves my holding in KMR unchanged after the pay-out date with me holding (more) cash than the $1.05 nominal rate and doesn't leave me "buying" KMR shares at a price that was determined prior to the ex-dividend date. In this specific case, I sold my shares at 48.01; the average 10 day price was 47.412; and that 47.412 seems to me to include $1.05 dividend, which I would not get on August 14 so I think my new stock would be worth 47.412 - 1.05 per share. This all seems to make sense for my specific purposes but I am certainly open and eager to a critique.
Just an aside: in many quarters the price of KMR has risen substantially after the ex-dividend date so this strategy shouldn't appeal to everyone. However, almost invariably within weeks the price drops again and I have felt partially vindicated, though then I wonder why I haven't sold everything in advance because this pattern has been so consistent.