Has anybody got tips/comments on the practise of "chasing dividends" i.e. buying on/close to the LDT with a view on making money on dividends and then getting out with a fairly flat share price. There is some information on the web but it is generally a few years old
I found this worked well last year in the Bull market. Stocks with good dividend yields (especially when some big names were stopping divs) practically always increased in price up to LDT (probably attracting long term investors following good results), then usually recovered quickly to LDT levels in the few weeks after. I would buy shares 2 weeks pre LDT and sell 2-4 weeks post LDT - almost always made profit on share price with the dividend bonus. I doubt this strategy would work in the current market as prices are too volatile...
SBK CFD's claim that the divs you earn on long position cfd's are "ceded to you" making them tax exempt under the current tax dispensation, this might be worth looking into as a way of dividend stripping. I need to add the usual disclaimer regarding that I am not a tax specialist blah, construed blah, advise blah.
Can't comment on whether cfd's carry too much gearing for a dividend stripping strategy or not, but my understanding was that typically div's earned on long cfd positions are treated as income and not as div's from a tax point of view, but if the div is "ceded to you" as SBK do then they can maintain their "tax free" status.
Much of the benefit to be had stems from the tax-free nature of the dividend. So - if you have a tax liability from your trading - buy the share, take the dividend, sell at a taxable loss roughly equal to the dividend and you already have a full marginal rate profit. The problem is that so few seem to have a tax "problem" these da.ys
My understanding is that all Divs earned through a stripping strategy will be counted as income, and taxed accordingly. Tax can be a thorny issue, but it appears if you hold the share for less than 3 years all income (capital appreciation, divs etc.) are all treated as trading income.
SBK's brochure could then be construed as misleading because they reckon: "Ordinary dividends and special dividends on long positions are ceded to the holder by SBSA, and as such the cash retains its exempt tax status. The holder simply pays the Securities Transfer Tax (STT) at the prevailing rate on the amount of the dividend." Unless of course they're implying you should hold your cfd positions for 3 years, which would be good for them (SBK) I suppose. Maybe I'm not understanding this correctly and should attemd a course.
Thanks Simon, Tax can be a thorny issue though and as soon as derivatives/futures are involved I always seem to battle to find any "tax expert" who will make any form of commitment regarding tax issues on derivatives/futures instruments. Are SARS 100% happy with that arrangement regarding ceding of dividends on long positions, because that represents quite an advantage over some of SBK's competitors and the other "over the counter" cfd okes?