ASX Dividends: Who’s our next target?
ASX Dividend stocks have been the best friend of many investors over the last two years, providing substantial returns on share price movements, but also providing cash flow that comfortably exceeds the current RBA cash rate of 2.5%. From the beginning of 2013 through to the end of October, the total return for the S&P/ASX Dividend Opportunities Index is up 22.98% versus 19.97% total return for the ASX200 Index benchmark.
Riding the endless summer of dividends
We have just finished the final busy period for the 2013 ASX Dividend season, with ANZ, NAB and WBC all providing dividends during November. Investors are now looking ahead to the next round of companies to provide dividends into 2014. We call this ‘riding the endless summer’ of the dividend calendar. The key to this strategy is getting onboard before the rest of the market does in attempt to ride the stock price higher leading into the ex-dividend date. Then, you can choose whether you hold the stock for the dividend, or whether you get out and take the early profit.
The next two big names on the ASX dividend calendar are Commonwealth Bank (CBA) and Telstra (TLS). Both large cap blue chip companies on the Australian Stock Exchange, and are currently offering dividend yields of 4.75% and 5.53% respectively. Telstra runs a stable dividend policy and so we can expect the reliable 14c per share ahead. CBA however has been increasing their interim dividend each year since 2009, where they held their dividend steady amidst GFC concerns. Either way, these two stocks are firmly at the top of our dividend target lists.
How to know when to buy and when to sell?
So now… the million dollar question is when do we buy and when do we sell. Typically we see a trend in the market that between 7-8 weeks prior to the stocks ex-dividend date is roughly a time that new support and buying attention emerges. Why 7-8 weeks? Well there is no set in stone reason, however in order to satisfy franking credit tax rules, many investors are required to hold their shares for at least 45 days. This is known as the holding period rule (please contact your taxation professional for further information on these rules). Buying early enough, say 7-8 weeks before a dividend, this gives traders the flexibility to offload their shares as soon as possible after they become entitled to receive the dividend.
For both CBA and TLS, we expect their ex-dividend dates will fall on 17th Feb. This means we need to be watching out for buying signals on CBA from late December onwards. These buying signals could be higher lows form in upwards trends, buying off key support levels, or even breaking up into new highs. Essentially we are looking for signs that the tide is turning and buyers are getting involved.
Why not also Sell Covered Calls
With 87 odd optionable stocks on the ASX, another approach to supplementing cash flow is to look at selling Call options over these dividend stocks also. By selling Calls at the right strike price levels and just ahead of dividends, investors can collect option premium in addition to dividend payments. At AIE we make this simple for our members by providing an ASX Dividend Centre that not only lists companies that are just about to pay dividends, but also highlights clearly those that have options too.