Saturday, June 18, 2016

stok tots: a question on dividends (18 JUNE 2016)

a reader from finance manila asked me a question last night ...

hi shoyu,

how do you compute for a stock's adjusted price on ex-dividend date? BCOR declared a 400% stock dividend and the ex-date will be on tuesday (June 21). BCOR closed today (June 17) at P31.50. What would be the stock's projected adjusted price on June 21?

On another note, I was disappointed why BCOR did not increase four-fold when there is a forthcoming 400% stock dividend. Last October 2015 (announcement of 400% stock dividend), BCOR was already doing P25-P27/share. Last week when the ex-date was announced, I thought BCOR's price would increase 4x to about P100/share because upon ex-date, the stock price will adjust back to P25 but it did not perform as expected.
What do you think went wrong with BCOR? The price increase to P31.50 is lackluster considering the upcoming 400% stock dividend.

If you were in my place, would you rather sell your shares at P31.50 or thereabouts (my average buying price was P27) on June 20 (day before ex-date) and lock in a small profit or avail of the 400% stock dividend to have more shares to sell in the future at a price that will not adjust the full 400% since the stock itself did not appreciate to the extent of 400%?

Thanks in advance!

my answer:

hi  xxx ....

1 . AP = OP x 100%/(SD + 100%)

AP = 31.50 X 100%/(400% + 100%)

AP = 31.50 x 100%/500%

AP = 31.50 x .20 

AP = 6.30

AP = adjusted price
OP = old price
SD = stock dividend

2. My thinking is that the price of BCOR has already priced in the dividend ... no one knows how stocks behave ... NO ONE ... we can only make explanations AFTER the fact ... kahit sino pa mag sabi na he can predict the price .. hula lang iyon .. if it happens ... chamba lang yon .. and we can only know AFTER the fact ...

some stocks gumagalaw after a big stock div ... it depends on the big money! if he wants to move the stock and malaki puhunan nya .. he can make it move .. ganun lang naman yun ... walang magic magic ... he who has the big money moves the price!

3. to sell or not to sell? hahaha .. as i said .. we can know what happens to a stock AFTER the fact ... who knows what will happen after ex date? we can only speculate ... 

depende na iyan sa iyo ... if wala ka pangangailangan sa pera .. if you do not have any other stok purchases .. pwede mo i hold lang ...

as for me ... i wont hold it .. ill transfer it to more liquid and more volatile stocks .. gusto ko yun gumagalaw e (or yung malapit na gumalaw)

hindi ko alam mangyayari e ... pwede naman gumalaw after ex date .. who knows? 

ill take the risk and sell .. pwede naman buy bak later if ever gumalaw (assuming maka habol ka pa)...