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The creation of a portfolio of ‘option
trades’ can represent a solid trading
strategy for the income investor with
risks and target returns set at the
outset.
The prospective optimised yield
is a constant variable because of
fluctuations in the price of the share
and the proximity to the ex-dividend
date; DividendMax performs these
calculations every day against 1100
companies and the calculations also
work for preference shares.
Whilst many income investors choose
to consider the next three dividends
that are due, DividendMax allows the
user to select other timescales looking
both backwards and forwards.
DividendMax is not intended to
encourage dividend stripping or
dividend capture, it is designed
to allow an income investor to set
acceptable returns from income
(dividends) and use this as a baseline
for total return, which takes account of
share price movements.
Current market conditions do not
favour the ‘buy-and-hold’ strategies
that delivered superior returns in
the 80s and 90s and the pursuit of
profit through unstructured active
trading may concern the DIY investor,
particularly when markets can be seen
to be acting irrationally.
DividendMax delivers planning
capability to the income investor
based upon their individual
circumstances and objectives. It is
designed to allow those looking to
employ a returns based strategy
backed by the willingness to trade
actively to seek out returns that out-
perform the market.
With all major indices in the UK
being down on the year, the DIY
investor may wish to consider adding
DividendMax to their trading armoury
because in current trading conditions,
dividends and active trading are two
of the only ways to eke a profit out of
stock markets.
Click on the link below for a free
30 trial, compare and contrast the
performance of some of the model
portfolios that have created or set
up your own dummy portfolio to see
how structured income investing can
add a dimension to your investment
strategy.
Admiral PLC, which has had an
optimized yield of over 11% during
the past twelve months and is
currently 8.40%. All figures are
correct as of the time this example
was constructed (20/10/14) Admiral
is currently forecast to pay the
following (estimated) dividends:
51.5p going ex-dividend on the 7th
May 2015
52.4p going ex-dividend on the 10th
September 2015 54.1p on the 5th
May 2016
Admiral may be of interest to you as
an income investor as it has a history
of paying increased dividends over
a sustained timeframe. Assuming
that it continues to pay increased
dividends, your Capital should be
relatively safe, other things being
equal.
The Admiral share price is 1222p
You expect to receive in that time
income of 51.5 + 52.4 + 54.1 = 158p
This represents a yield of 12.93%
(158/1222)
To show an annualised figure the
yield is multiplied by 365 and then
divided by 562 which is the number
of days until the third dividend goes
ex - i.e. 12.93 * 365 and divided by
562 to give 8.4%. An annual yield of
8.4% becomes the target return on
an investment in Admiral which, if
deemed acceptable, can be added to
a portfolio.
To secure the option trade, Admiral
would need to rise to 1324.6p at
any time during the 365 days from
the execution of the trade. This
figure would be adjusted according
to any dividends that are paid in the
period and the achievement of the
‘option trade’ quickly can lead to
outstanding returns.
