If You are Bored

Sometimes us income investors get ‘bored’ while watching our issues tread water–just waiting for our dividends to show up in our accounts.

OR you have so much damned snow on the ground you are too cooped up (like the picture of our deck above)

As long time readers know we don’t advocate ‘trading’ much–we might do a little bit of it from time to time, but mostly we like the “buy, hold and collect dividend” approach.

We also know that there are many readers who think trading has little to do with investing and have quite a disdain for “trading”.

In the end we are for anything one wants to do to make a little extra money–everyone is different.

Personally we always have too much cash sitting in our accounts–anything more than 10% cash is probably too much cash. So when we have time we have a bit of a pastime and that is “dividend capture”. Now everyone probably has their version of “dividend capture” and sometimes it works and sometimes it doesn’t work.

“Dividend capture” as we define it is simple. We look to lock down a dividend payment from a preferred stock or baby bond , by holding shares through the ex-dividend date. If the dividend is 50 cents we look to lock down a net gain of at least 25 cents. This means the total of the capital gain/loss plus the dividend equals at least 25 cents–about 1%.

The definition to us is easy, the execution more difficult. Everyone has their method. Here is what we did in February that worked very well (probably too well–sometimes we mistake luck for genius).

Survey the ex dividend calendar. Find shares in a fairly stable and liquid issue that goes ex-dividend in 10-12 days–preferably with a coupon of at least 6.5% and buy 400-500 shares (enough shares to make it worthwhile). This should be at least a mid level quality issue as we don’t like captures that go bad when a low grade issue puts our a press release announcing trouble during our capture period. Pay attention to the 1st call date as shares either past or near a 1st call date act differently than those with a 1st redemption date 2-3 years out.

Many times an issue will rise into the ex-dividend date as investors jump in to get the dividend. If an issue rises 30 or 40 cents BEFORE the ex date we sell–it is a busted capture but it worked very well. If it rises just 10-20 cents we go ahead and hold into the ex-dividend date and will sell at any point where we can lock down an 25-30 cents profit (capital gain/loss plus the dividend)–hopefully within 20-25 days.

Obviously this doesn’t always work–or everyone would be doing it all day long everyday. Sometimes when the issue is “marked down” on the ex-dividend date it just keeps falling–that is why we want the “tone” of the market to be decent.

Now we only got serious about dividend capture during February after we launched our ex-dividend calendar. I need easy info to mess around with this. If I have to search and search for dates etc I can’t do any of this – just don’t have the time.

Our ex-dividend calendar is here.

We update this calendar all day long so it stays nice and fresh–of course there are issues where the lazy board doesn’t declare the dividends until a week before the ex-date, but mostly they are declared in plenty of time for us.

We added about $700 to profits in February by messing around with this capture. We only tied up about $20,000-$30,000 at any given time fooling around with this.

29 thoughts on “If You are Bored”

  1. Hello Tim…I just returned from a holiday where the internet was not readily available and this website was my first stop to catch up all the news regarding preferred shares and exchange traded notes. Kudos on having had a successful month trading these issues and thanks for posting a photo of the spot where all those steak dinners you’ve earned get prepared!

  2. Lively topic for sure… count me in the boring section happy collecting those dividends every month.

    Any recommendations to park some cash while waiting for opportunities. I used SRLN last year but didn’t turn out too well.

    1. Jay, I really like this article by Tim and found it very interesting. As Tim mentions, trading is not for everyone but it may have a place for investors that would like to boost their income. If investors know the fixed income issues, it can be very profitable. It’s great when the fixed income market is moving up, but would be very difficult to complete when there were difficult times such as December. Good trades can certainly provide another source of income – especially if done in a retirement account where there are no tax consequences. Kudos to all investors that take this path!

      At least for me, I have decided against trading much – although I would certainly trade fixed income securities that have solid financials and have dropped on market weakness due to poor market conditions. I’ve done it in the past and would certainly do it again if market conditions are right.

      In my past work life as a CPA, I spent most of my hours looking at a computer screen and don’t want to do it again – so trading will not work much for me. Yes, I can make a few extra bucks but would prefer just to own preferreds like JCAP-B (no recommendation here on the shares), take the dividends and just spend more time on activities that I enjoy such as swimming at my local YMCA or helping out at my local animal shelter.

      Happy investing to all and I have enjoyed reading all of the comments. Great website and glad investors are doing well. Like I told my brother last night, the gains in the account are great for now – but December was not long ago.

      1. Hi kaptain Lou, I am not dissing trading and found the information in the article of substance as well. Though as you stated at this stage in my life trading is beyond my attention span πŸ™‚ Kudos to all who do and are successful at it.

        Much gratitude to Tim and the contributors who continue to share their invaluable insights, with this knowledge I managed to reconstruct our portfolio. Using the bucket methodology I split our portfolio into Growth, Yield and Cash buckets. Our Yield bucket consists of 20+ sector-diversified preferred & baby bonds based on the knowledge I learned here in addition to a couple of REITs and CEFs (STOR, WPC, UTG, ARCC) Having no pension or SS yet the yield received is our only source of income.

        Yes Dec pains are still fresh and a reminder that one can’t be complacent, but having a long term plan and “tuning out the noise” is the best course to a healthy portfolio. GLTA

  3. Tim, your GLOP/C is going Ex for an upcoming biggie this Thursday. Think it is paying out about $0.71 due to an extra month (11/15-12/15).

    Problem is this one could drop like a rock on Ex, who knows. Current Yield still higher than A and B, worth the risk? May get a steak dinner out of it.

  4. Love the comments on survival div capture above. Seems the angles were covered well.
    Did a ton of work on the CN prefs and Resets. I found it necessary to think of the reset as an event that can be an automatic ‘rollover’ by the company. BUT: There is a juicy capital gain goal to get the CALL and NOT the Reset, even if it takes a couple of years of collecting the div while waiting. My fangs started itching. I dug into those that might be Call Culprits and it boiled down the Banks.
    Banking rules changed to exclude “old prefs” as outside NVCC (Non-Viability Contingent Capital) . In other words: if a bank wants to have pref capital that would be included in Contingent Capital in case of non-viability, it can be non-cum suspended indefinitely (in certain circumstances). They are calling old issues which are outside NVCC, and reissuing new NVCC (and not go through the call date reset). I am seeing CN bank prefs labeled with NVCC now! Targeting those that are serially calling and converting to NVCC is a game that the smart Canadians have already bid into and a fair values as far as I can see. Apparently all this has to be concluded by 2022 at some deadline.
    The non-bank Resets seem to be another view for another consideration entirely. I do not see this in other CN financial stocks…yet. May be a positioning play?!
    Love the snow shots and agree wholeheartedly with the sh term trades in IRA/HSA. JA

    1. Joel, they are starting to add another twist up north…Not only the reset and vote to floating, but minimum floors are being added also. A newbee really has to read slowly to get the gist of these Canandian issues, now. The minimum floor issues tend to trade for more of a premium. These started being created because people were getting creamed on resets well below initial purchase price. Im thinking about one with a 4% plus kicker and over a 5% fixed minimum floor that is presently about 12% under par. These provide protection from the 5 yr cratering to near zero like Germany.

      1. Like I said…’they no Dumdums’. Seems everything will be contingent on a adjustment somewhere at some time. The smart guys are still in the room.
        My thesis here for a part of your permanent portfolio is: IG/HQ Perps laddered out for your life expectancy? You can always sell them if it all takes a hit and take the quality coupon in the face of someone else’s uncertianty? A questioning thesis.
        Seems like an old annuity plan arranged privately. Damn, they told me it would all come around to fundamentals and start looking like the Past. Just gotta know when to shift. I think there has been a real lesson for me studying the methods of the conservatives up North! JA

        1. Joel, I have bought from all angles in US and to the North…I own perpetual non callable, perpetuals, reset adjustable higher kickers, reset adjustable lower kickers smoked on price point, and reset adjustable minimum floor. I have reset dates yearly from 2019 to 2025. Its like a variable annuity like you stated.

  5. Tim,
    I enjoyed reading your Bored article. One of my good “investing” friends gave me a heads-up on it. Your are totally correct as to individual taste and processes as it relates to the stock market. There is no; “One size fits all”. Long story short, another close friend and I are actively engaged in the dividend capture strategy. First, let me say that this effort requires a significant amount of time, effort, data and record keeping. If you are not organized and willing to put the time in, then dividend capture is not for you. In our case, we are 100% engaged with the capture process. While the process did not start out that way, by the end of 2018, it was obvious to us that this was they way to go. The first thing one must be willing to accept, is that this is a 100% short term gain process. Forget about any “long term”
    capital gains or “tax qualified dividends”. If you are okay with that, then it’s up to the individual how to construct his process. Thus far, it appears that our process will indeed prove to put more money into our pockets at the end of the year, despite being “regular earned income”. While our process is pretty complex, one item worth mentioning, is that a dividend capture process does not necessarily mean you have to capture the actual dividend by holding to the ex-dividend date. In about half of our our trades, we capture the dividend “value” before the ex-dividend date, and then exit the position. Our target yield is 2 to 2.5% per trade and our average hold time is 28 days. And no, this is not investing by any definition. It’s short term trading, but so far, it’s proving to be worth the effort. While my outside deck is covered with sun instead of snow, I’m still sitting inside staring at this computer. …… making money LOL πŸ™‚
    Ward C

    1. Ward C – thanks for your valuble input. Anything I do is in an IRA so I don’t have to be concerned with some details – i.e. qualified, short term/long term etc.

    2. Ward, exactly my line of thinking. Most time the buying or selling is done pre exD. As many dumps occur prior as people take the cap gain or whatever and dont want to pay full tax on divi from holding for it then selling.
      I dont have a 7 figure portfolio (I am a pensioner) so that unfortunately helps. But past 5 years I have returned between 10-16% annually just by trading 6% ish preferreds. You dont get those returns just buying and holding. Of course riding a perpetual low rate yield environment is the cornerstone to the gains though.

      1. Gridbird,
        Yes, it does work, but again, it requires a lot of time and effort. But, I am retired and it keeps out of trouble (for the most part). We try and stay with a 2% minimum yield per event. At present, we are averaging 2.3% per event. So, with a 28 day average hold time, the math speaks for itself. The portfolio is always 100% in play. If we sell one, we buy one the same day. It’s like the express lane at the supermarket πŸ˜‰

        1. Ward, I am with you! I only have one issue that I would never sell. Last year was tough and I barely got to 10%. I took 2 trades flipping at almost 40% each and a one unplanned call of an issue at $15 that was redeemed at $21 to help get me there. This year like many here I suspect, I think if I bought and put it all in KYN-F and run out the clock I would have 10%. But that isnt any fun. And rate headwinds dont appear stiff for time being.

        2. Ward, I did a little reflecting and I guess I really dont do what you do. You have a systematic dividend capture plan. β€œThe hard work” part flew over me, lol. I play it a different more random way (so my brain doesnt have to think as hard).
          I just simply look for sell pressure just outside of approaching divie window. A situation for example like RLJ-A was last week. Descending towards par despite juicy divi approaching end of this month. This pretty much was a lay up for a small cap gain if not wanting to hold. So I look a bit more for the sell imbalance inconjunction with divi approaching to help rebolster the price. So my buys are more random than systematic.

  6. I have been studying dividend capture for the last few months. It only works if the stock price recovery is a short period of time and has a consistent recovery history. The website Dividend.com provides x-dates and historical stock price recovery time. It requires a sizeable investment to make the dividend capture worth while. To date, I am not very optimistic about the process.

    1. P, we all have our sins and will have to account for them at Judgement Day. πŸ™‚
      BTW, my Fortis G preferred that was in tax free at the exD time came today. The 15% was not withheld. FTRSF was a pink sheet and ERRAF is a grey market. Another person who had the Enbridge preferreds informed me the 15% was not withheld either. It also is a Pink Sheet. I had mine in taxable so I knew it would be withheld.

      1. OK, I admit it, I’m a flipper too. Re the Canadian in IRA. I bought Alta common from Etrade in a IRA. I flipped most but held some for divvy payment just to see. Etrade has told me in writing they will not guarantee divvy tax free. I took it up a long flight of stairs and was told the same thing. Alta pays me on 15th, or there about, so I’ll see for sure. Interesting is that I talked to Schwab about it. Money is like catnip to all these guys and I got kicked upstairs. I was told they guarantee no withholding in IRA. Go figure.

        1. I neglected to add one minor but potentially importance thing. Schwab Regional Mgr patched us into Schwab Foreign Desk Mgr to verify the IRA information. This because when I traded Canadian prior I preferred to buy direct TSX. Higher fee but usually saved a few cents and not as opaque, on larger buys (1000+) it was usually worked out cheaper and I could trade real time.

      2. Have you ever had 15% withheld from anything foreign that was owned in an IRA? I’ve never seen this occur with any type of security.

        1. Yep…ERRAF….TD has no answer being it is an unsponsored ADR. I got 2 months to get money set up for a taxable account at TD to move it, so it doesnt happen again.

          1. Grid, Are you familiar with the mechanics of an unsponsored ADR? Or do yo know the entity or process that links an ERRAF or EBGEF from TSX to the OTC market?

            1. No, Alpha, and that is the problem, lol…We have a weak pattern here…Enbridge and Fortis were not withheld and are reporting pink sheet issues… ERRAF is a pure grey market and was withheld…I hold Altagas in tax and tax free. It will go exD and pay end of month. It also is grey market. Will be interesting to see how it plays out. Its possible then that the Enbridge and Fortis issues are not unsponsored but I just assumed them to be since prospectus of each stated they were not intended to be traded on US exchange. A sponsored issue should be able to have 15% not witheld since there is a direct trail…Who knows, but things can change. My FIISO was a private placed issue and a ticker was later assigned as that is how I bought them.
              Then again it may just be a fluke with ERRAF and rest will not be withheld.

        2. In my case when I traded Canadian it was years ago and there was never withholding. Other countries withheld at very high rates at that time. Canada/US has a unique a tax treaty that is supposed to allow no tax into US IRA or going the other way into their version of it. I avoided Canadian holdings for years but looked into it recently as Grid peaked my curiosity. There appears inconsistency broker to broker, or security to security, about tax withholding policy at present. So yes, some other counties will really sock it to you on taxes into IRA. Canada tax into IRA, going by other people’s experience, may be inconsistent at this point in time. Etrade told me to talk to my tax advisor, which I didn’t find helpful in understanding the situation.

          1. Got EBBNF dividend today in TDAM IRA. No withholding, divvy date was Friday so slight delay. Thanks Grid!

            1. Glad it went smoothly for you, Tim. TD drags their feet a bit on these it seems. Mine have been late, also.

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