Telstra Share dilemma...

[Social don]

Hi Guys,

we have 20,800 TLS shares which we must sell before the end of August as we're going to buy a house. Our question is when to sell them?

I think that the cut off date (or whatever the technical term is) for receiving the dividend payment is around the 19th of August. Is the stock likely to increase in value towards the 19th or should we hang on to the shares to receive the dividend which would be about $3,000?

Any advice would be gratefully received so thanks in advance

Dave and Sal

 

[ROE]

Re: Telstra Share dilemma....

Hi Guys,

we have 20,800 TLS shares which we must sell before the end of August as we're going to buy a house. Our question is when to sell them?

I think that the cut off date (or whatever the technical term is) for receiving the dividend payment is around the 19th of August. Is the stock likely to increase in value towards the 19th or should we hang on to the shares to receive the dividend which would be about $3,000?

Any advice would be gratefully received so thanks in advance

Dave and Sal

it is really a judgement call

share price usually drop the day it went XD by similar amount it paid out in dividend
but stock like Telstra and Banks and Woolies tend to recovered the loss in a few weeks or sooner.

so if you want to hang on and get dividend then it is a judgement call for you... that usually what happen
but nothing is 100% risk free...there is also a risk it can go much lower than the dividend payout in the weeks

after XD depending on the market condition and sentiment...once people bagged the dividend and there is sentiment change lot of people may decided to exit as there is no reason to hold on while it is fully price
and no up coming dividend for a while

Good luck with your decision

 

[DeepState]

Re: Telstra Share dilemma....

Hi Guys,

we have 20,800 TLS shares which we must sell before the end of August as we're going to buy a house. Our question is when to sell them?

I think that the cut off date (or whatever the technical term is) for receiving the dividend payment is around the 19th of August. Is the stock likely to increase in value towards the 19th or should we hang on to the shares to receive the dividend which would be about $3,000?

Any advice would be gratefully received so thanks in advance

Dave and Sal

Hi...I'm not giving advice, but here are some things to consider:

The strategy you are referring to is called the dividend run-up or the dividend drop. Stock prices do tend to run up (relative to the broader market) as they move into the ex-date. Beyond that, it's pretty much a wash. This was a detailed study into it conducted by the ASX a couple of years ago. It remains relevant.

http://www.asx.com.au/images/about/ASX_Ex_Dividend.pdf

Here are some key points. The abnormal return (return relative to the broader market) for stocks in the ASX 200 (at the time) with dividends and franking included appears as:



You can see the run-up is significant. After that, it rises less significantly and then peters out. This is an average, there is a wide variation around this outcome.

As this line is average, it might be helpful to point out that the effect is less prevalent for large cap stocks. Offsetting this is a tendency for this effect to be stronger for high yielding stocks and stocks that pay fully franked dividends. However, the most significant finding may be that this effect looks very weak for Telecommunications stocks in general. Overall, the conclusion I would draw from the data is to suggest that the dividend run up and follow through might be around half as significant from the chart.

Once again, a large variation around these findings will exist as a single outcome can do anything.

Other points to consider:

What is your tax rate? If it exceeds 30%, you are possibly better off selling before the dividend ex date as you prefer to receive returns in the form of capital gains (assuming you have held for more than 12 months).

Given that you are committed to buying a house and need to sell these assets to fund part of that purchase, you are essentially leveraging your position in TLS with after tax mortgage level of interest. Ask yourself if you actually want that.

Finally, let's say that TLS-AU can move +/- 5% between now and when you choose to sell it in late August. I'd be fairly sure that a loss of maybe $5k would be more painful to you than a gain of $5k. It would get more painful the wider the spread of outcomes. The return spread over this period could easily be +/-10%, just to give you an idea. Although the possibility of additional returns from the dividend run-up/drop effect does tilt the balance somewhat, ask yourself if you believe in the bird in hand view or not. Many people require a fair bit of incentive to take this choice and move in favour of risk, particularly if the impact is large and undiversifiable.

Overall, the street is fairly ambivalent about this stock. Few brokers believe it is a "BUY". Given the predominance of preference for BUY recommendations, this is a weak outcome. Earnings estimates in recent times have been ratcheting downwards. Target prices (which are normally above prevailing price) now approximates it.

All the best with your deliberations.

 

[luutzu]

Hi Guys,

we have 20,800 TLS shares which we must sell before the end of August as we're going to buy a house. Our question is when to sell them?

I think that the cut off date (or whatever the technical term is) for receiving the dividend payment is around the 19th of August. Is the stock likely to increase in value towards the 19th or should we hang on to the shares to receive the dividend which would be about $3,000?

Any advice would be gratefully received so thanks in advance

Dave and Sal

I'd do what RY said.

And go for a bird in the hand.

From personal observations, stocks tend to go up as time get closer to the ex-dividend date, then drop by the same or more than the dividends right after.

With big companies, it tend to quickly recover that dividend loss within a couple of weeks.

So if you don't want to risk waiting for that ex-div recovery, and depends on your tax situation, probably better to sell a couple of days before the ex date.

But if you could wait for 2 to 4 weeks after being able to receive the div., then wait, collect your dividends, and maybe whatever price recovered within a couple of weeks could is just a bonus.

Me, I'd sell a day or two before the ex date, pocket the cash in three days, earn some interests on it rather than wait a month for the dividend to come in... also save time having to check the market and wonder when to sell.

spend that time worrying about how else to pay for that mortgage

 

[Social don]

Thank you all for you advice chaps. We will have a proper read through and make our decision nearer the time - it's rather a lot to take in but we're really pleased with your responses! Fingers crossed for us please

Dave and Sal

 

[VSntchr]

That's a fantastic post RY, thanks for the thought provoking chart too.

 

[Lynchy]

Hi, I'm new to the forums as well. I have a much smaller share in Telstra (1000 shares) What are your thoughts on the share buyback program that Telstra may be doing?

 

[DeepState]

Thanks VS. Appreciate it.
Fingers are crossed for you Dave and Sal. Congratulations on the new home.

Hi Lynchy, what's your tax rate? What did you buy the shares for? When? Is your objective simply to maximise after tax profit, or something else?

With that info, the great and the good on this forum will be able to guide you accurately. There are people with solid knowledge on TLS and tax floating around here. Thanks for the question.

 

[Lynchy]

Thanks VS. Appreciate it.
Fingers are crossed for you Dave and Sal. Congratulations on the new home.

Hi Lynchy, what's your tax rate? What did you buy the shares for? When? Is your objective simply to maximise after tax profit, or something else?

With that info, the great and the good on this forum will be able to guide you accurately. There are people with solid knowledge on TLS and tax floating around here. Thanks for the question.

Hi,

My tax rate will push into the 37% bracket a month or so before EOFY. I purchased them 26/06/2014. (Currently $100 up) I bought them for the dividends, as well as the work they will be doing for the NBN. It should see a stable return over the next 6-12 months.

I have read a fair bit in regards to the market/companies, like what to look out for etc. I haven't read much in regards to tax floating or tax in general. I know I will have to pay capital gains on anything I make but that's as far as my knowledge goes at the moment.

I'm really enjoying the challenges that the stock market has to offer, theres so much to learn but not enough hours in the day!

 

[luutzu]

Hi,

My tax rate will push into the 37% bracket a month or so before EOFY. I purchased them 26/06/2014. (Currently $100 up) I bought them for the dividends, as well as the work they will be doing for the NBN. It should see a stable return over the next 6-12 months.

I have read a fair bit in regards to the market/companies, like what to look out for etc. I haven't read much in regards to tax floating or tax in general. I know I will have to pay capital gains on anything I make but that's as far as my knowledge goes at the moment.

I'm really enjoying the challenges that the stock market has to offer, theres so much to learn but not enough hours in the day!

Hope it will work out well for you and all, chances are you'll get the dividends with maybe even price appreciation. BUT..

For future, I think it's safer to follow Phillip Fisher's advice and only buy stocks with money you do not need in the short term. That if the price of your stocks were to go down over the next year or two, you'll be fine, financially.

To buy and needing to sell in such a short time, if the trade works out well and you sell at a profit, your dividends and price gains will be considered income and taxed at your 37% [which you can push back to next year while claiming expense for this year right]... Not sure if that kind of risk, and maybe a couple sleepless nights, is worth the possible gains.

We all do it - buying a company then start reading up about it, analysing the gains and potential losses - but try not to shoot first then ask questions. It's not recommended in law enforcement, not recommended in investing as well.