Should I buy stocks before the dividend cut?

We have a convenient beautiful calendar on the smartlab in the dividends section, which clearly shows the yield and the date by which you need to buy paper in order to receive these dividends:
Dividend educational program: is it worth buying shares before the dividend cutoff?

An investor who looks at this calendar may be tempted by attractive returns and buy something, ignoring a host of other factors that will determine the future return on investment.

Although it is obvious that there is no easy money, for many novice investors it is not entirely obvious that it will not be possible to pick up a dividend yield just like that. Forgive me for perhaps writing banal things now, but I think that someone will be new.

Dividend nuances

👉 As a rule, if the market begins to anticipate a high dividend yield, stocks will rise well in advance of the dividend announcement. An example can be seen by looking at the shares of Gazprom or OGK-2. The main growth happened exactly BEFORE, and not after the announcement. This is often the case, either because insiders are buying who know about the payout, or the market is setting up in advance, trying to predict a high dividend.
Dividend educational program: is it worth buying shares before the dividend cutoff?

👉If you see that today the stock is trading with a dividend, while the dividend yield is some huge amount, for example, 20-30% per annum, you have to understand that you won’t be able to make money on this. Because you buy a stock today, and tomorrow it will fall by the amount of the dividend or even more.. At the same time, the next dividend (in a year) is not guaranteed. Most often, you will see the highest returns exactly where the payment is the last or one-time. It turns out that the share price is low, and the yield is high precisely because the next time there will be no payment. If investors were sure that Gazprom would pay a dividend of at least 52 rubles per share for, say, 10 years in a row, then Gazprom’s shares were now worth not 300, but around 450 rubles. But investors are unsure about future divas, so they are in no hurry to buy stocks.
Dividend educational program: is it worth buying shares before the dividend cutoff?

👉In the past, there was such a pattern that the dividend gap is usually slightly less than the dividend. Therefore, having bought a share before the cutoff, it was possible to take a dividend, and then sell the share a little more expensive on the rebound after the gap. It turns out small, but profitable. But you can get there if you fly into a cruel recoilless gap.

It is important to understand that in a growing (bullish) market, dividend gaps close much better than in the current one, so it makes sense to go into the cutoff if you are a long-term investor, or if you believe that the next dividends will be no lower than the current ones.

Our Mozgovik Research team and I looked at this season’s payouts and came to the conclusion that few people can repeat last year’s high payouts. That is, such leaders in paying dividends in 2021, such as TMK, Severstal, NLMK, MMK, MTS, M.Video, NKNKH, Unipro, Nornickel, are very likely to reduce their payments in 2022.

Where does the money in dividends come from?

If not for high dividends, Gazprom shares would hardly be worth almost 300 rubles now. The same can be said about the shares of OGK-2, TGK-1, MTS, which pulled themselves up thanks to generous dividend payments. To earn quick money, it would be necessary to predict those companies where a high payout is possible a little earlier than the rest of the market.

In addition, dividends are the joy of long-term investors. For example, you hold Gazprom shares for a long time, intending to hold them regardless of the price for another 5 years. In this case, you do not look at the price of the stock, either before the cutoff or after, but the real dividend payments are certainly pleasant, because they can be used for new purchases or for personal expenses. And the main thing here, again, is to identify stocks that have favorable long-term dividend prospects. Because if Gazprom doesn’t pay next year, you won’t be particularly happy about it.


And the last. Take a close look at our plate:
Everything above is the advice of the board of directors. According to the law on joint-stock companies, the meeting of shareholders may cancel this dividend payment.
Here we are glad, for example, that we have declared a high dividend in Gazprom or OGK-2. But there is a small chance that this dividend will not be approved at the meeting, and then the papers will go back. Previously, this happened extremely rarely, but in the current conditions it is quite possible.
But personally, of course, I do not expect such a scam, at least in Gazprom, OGK-2 and TGK-1.
For this reason, after the successful completion of shareholder meetings, dividend stocks may receive an additional impetus to growth.


To earn on dividends, you will have to sweat:
✅ either you hold the shares for a long time, and do not look at their price (the easiest way), and enjoy dividends
✅ either you are trying to predict a dividend faster than the market, which has not yet been taken into account in the share price
✅ well, you can also try to predict whether the company will pay dividends next year

Well, you can read smartlab premium, where our team is racking their brains to answer these questions.

Author of articles on trading and investments, which I have been doing for more than 8 years. Even from your phone, you can open a deal, buy shares, build up capital in assets that will bring dividends even when you stop working. You can't just not think about it.

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