This week I want to chat about dividends. When it comes to real stock market investing, rather than short-term gambling, these are really important. Here's a good rule of thumb to check whether you're a good value investor buying the right sort of companies (this does not count for day traders, ultra short-term traders or derivative traders).
Over a year, add up all the dividends received and then add up all your costs (stamp duty and broker commission). If your dividends have paid for your costs and maybe given you a few quid profit on top, I reckon you're doing well. But if your costs outweigh the dividend income by a long way, I would guess you're losing money on the markets because it's a clue that you're overtrading or gambling too much.
For example, in my SIPP over the last 2 years costs were about £2,400 but dividend income was nearly £3,000. That's good going and great for a pension fund where I've been a bit more conservative. If you aim for your dividends to cover costs, this is also great because your capital growth has really come at no cost.
Generally, it's very important to watch dividends and dividend payments for many reasons. For example, if you're thinking about buying a company, watch for regular increased dividend payments over a couple of years. This is often a great sign of a healthy company.
And for goodness sake, know your "ex" dividend dates!!
So many investors screw up with this. Remember, on "ex" day a share with a dividend will usually fall by the amount of the dividend before the start of trading. So, say you have a share at 240p and the dividend is 10p, it should start the day down 10p. But what often happens is shareholders are unaware of the XD date, think their share is in trouble and often sell it!
ADVFN makes it very easy for you to know when your share is XD. In the new monitors, you can check in the far right-hand column where it'll simply say "XD". To check the XD date of your shares is easy too. Just click "Financials" once you've got a quote on the share you're checking, and scroll down the page until you get to "Dividends". The "ex" date and the amount is there for you. Shares with big dividend payouts often rise in the two weeks before XD, as some investors buy in for the income.
Turning to the markets in general, it's been a marvelous last four weeks and my portfolio has rocketed up. My star trade was topping up in Burren Energy at 469p a couple of weeks ago to see it quickly rocket to nearly 550p. My first buy of this share was at 241p, so I've more than doubled my money in that trade. Brammer, Broadcastle, Carrs Milling and Kier Group are all recent buys that have seen big gains for me.
However, you can never rest easy in the markets and I still think we are set for a fall over the late summer. That's why I have a FTSE short open, which is currently around 130 points out of the money. But I'd be surprised if that didn't pay out this year
and big time! Only time will tell.