Need help with my 212 channel!

Working on my own portfolio at the moment and made a few mistakes. My biggest one is starting my ISA in HL. I’m currently working on getting out of the funds in there and transferring over to 212 for the new year and I’m going to need help dumping that money into solid dividend stocks and ETFs

Any advice welcome, if you have a look at the videos you might get an idea of the direction I’m going and the mess I’m in and love to hear people’s thoughts.

I accidentally posted the link in another post so I don’t think the community is allowing me to post it again :confused:

Ill post a link to that post in a comment below

Cheers!

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I just watched your video. Nice. It will be helpful to newbies to see the whole process of depositing funds and purchasing. A couple comments.

  1. I agree that dividend information will be nice to have in the app.

  2. You seemed to imply that the stamp duty on GSK would not have been charged if you had been buying within an ISA. In fact one always pays stamp duty.

  3. Why do you want to buy just before the ex-div date so as to capture the dividend? You will simply be getting a return of your own money and may have to pay dividend tax if you were to have > £2000 dividends in the year. All other things being equal, the share price will fall after the ex-div date by the value of the dividend that is no longer going to the share owner. So you are really just receiving back your own money, and maybe making it liable to tax. Personally, I prefer to buy when the stock has gone ex-div and its price is lower. (I may have made this point in another post. Apologies if I am repeating myself.)

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@Richard.W In theory the stock drops by the amount of its dividend, but the market doesn’t necessarily work this way. a large part of a stock price is investor opinion and sentiment. so while it may temporarily dip, you often see a rough small correction that finds a sort of happy midground before the next bit of news comes.

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It’s simply that I haven’t had a dividend through 212 yet and I don’t know how it works. My whole channel revolves around me trying to build trust in 212 and gaining a dividend is a step closer to me moving away from HL.

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@Dao You are correct. Sentiment will move the price more significantly than the amount of the dividend, received or not, before and after the ex-div date. Price can rise or fall by much more than the dividend amount.

However, it must “on average” fall by the dividend amount else there would be a free lunch opportunity - which an efficient market never really produces. Suppose the price were not to move for any other reason of sentiment over the one day the stock goes ex-div. For those who pay tax on their dividends it really is much like putting in your money, and then a few days later receiving part of it back, as something you now have to pay tax on. Of course the efficient market also reflects this issue in the price, because of demand of people wishing to buy or not buy for such reasons either side of the ex-div date; so what one sees happening to the price is more muted. However, it should be clear that whether you do or do not pay tax on dividends should be relevant to your decision to buy now or wait for the stock to go ex-div. Personally, in a taxable account, I will wait a few days for the ex-div date to pass before I buy, but only if it is a matter of a few days. Otherwise, if it is a stock I fancy, I’ll buy now and accept the dividend tax hit.

Here is a helpful article about this issue from Investopedia. What the author writes makes sense to me.

https://www.investopedia.com/ask/answers/buy-before-dividend-then-sell/

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@Dao’s comment got me thinking about how we might investigate the effect of a share going ex-div. We can do this by looking at two ETFs which track the same index, but have different dividend dates. Looking at the ratio of prices will factor out any effects that are due to sentiment.

Below is a table of closing prices for VUKE and ISF, two FTSE 100 trackers. VUKE went ex-div on 26 September, 2019. ISF had surrounding ex-div dates of 12 September and 12 December.

Note how the share price ratio of 100*VUKE/ISF drops to 4.47 on 26-Sep when VUKE goes ex-div. The VUKE share price drops to 32.39, but rises back to 32.72 on 27 September, more than it was on the 25th, but it is still depressed when compared to the ISF price.

date VUKE ISF ratio
23-Sep-2019 32.76 723.00 4.53
24-Sep-2019 32.53 718.80 4.53
25-Sep-2019 32.52 719.00 4.52
26-Sep-2019 32.39 725.20 4.47
27-Sep-2019 32.72 732.80 4.47
30-Sep-2019 32.66 731.00 4.47
1-Oct-2019 32.44 725.70 4.47
2-Oct-2019 31.37 702.10 4.47
3-Oct-2019 31.22 698.70 4.47

I suppose it would be possible, by switching back and forth between VUKE and ISF, to collect no dividends. Instead, one would accumulate greater capital gains. That could be beneficial when capital gains tax rate is 20% and dividend tax rate is 32.5% (for UK higher rate taxpayer). I wonder if the trading costs due to bid/offer spread would wipe out any savings on tax. Roughly speaking if the yield is 4.8%, then on £10000 of shares we save (.325-.20)*480 = £60 in tax, but spend 0.05%, 8 times a year in switching costs, amounting to £40. So it appears only marginally worthwhile.

However, the savings can be greater in the case of an accumulating ETF such as SWDA. If you hold this share on the distribution date of 31 December you are liable to dividend tax on the nondistributed, but reportable, income for the year (eg $1.0685 per share in 2019). By selling just before 31 December you avoid this tax liability. Prices of accumulating ETFs tend not to drop at their distribution dates because dividends are continuously being reinvested, not just paid out on 4 specific dates each year.

I think my difference in opinion stems from my personal belief that the “efficient market” theory is a load of nonsense. there are too many recorded events in the stock market which shouldn’t have happened if the theory held true. as for the dividend income hunters who buy a stock for its dividend and then cash out after the ex-div date, its important to remember the price doesnt in fact act efficiently precisely because humans with opinions and sentiment are involved and the money isnt free or coming from nowhere, the dividend is already free, the retention of capital gains is taken at the expense of the person who proceeds to purchase those shares from you. the share price dips slowly enough after a dividend payout that income seekers have plenty of time to sell off their shares for a marginal loss/gain in capital appreciation before market sentiment catches up to reevaluate the company value.

the method is valid enough to have a rather large subset of investor/traders doing just this and seeing returns for their efforts, not amazing returns I figure, but consistent returns all the same which wouldnt happen were efficient market to be in play and for the share price to really drop by its dividend.

for just as many who look at a company dividend and think “of their cash, this much is already set aside for payout and is already factored into their price” there is another group who believes “all of this money is their free cash and now the dividend has taken away from that so the company is worth less”. the groups are about equal in size but the value of the opinion is as stark a difference as between those who invest in dividend companies compared to those who prefer to invest in growth companies.