This tutorial is intended to contain all the necessary terminology you need to understand exactly what we are talking about when performing swing-trades and DRIP using our trading system.
After reading this tutorial you should be able to “talk-the-talk” as the old adage says. Our other tutorials should help you to “walk-the-walk”. Dive in and please let me know if something isn’t completely clear or if you would like to add something to the list.
- confirmed ex-dividend date – This is the ex-dividend date that has been officially announced by the company on the dividend declaration date. If there is every a difference between the confirmed ex-dividend date and the projected ex-dividend date (defined below) you should always use the value contained in the confirmed ex-dividend date when using the stock finder and portfolio tools.
- distribution – This is a more generic term for the payment of assets from a fund, account or individual security to an investor. A distribution refers to a company’s or a fund’s payment of stock, cash, and other payouts to its shareholders. With securities, like stocks or bonds, a distribution is a payment of interest, principal or dividend by the issuer of the security to investors. In other words if a stock or bond pays you a dividend that is a from of distribution, so a dividend is a distribution. However if you are paid a distribution from an investment trust that is not a dividend. Distributions from investment trusts typically offer higher yields that can be as high as 10% a year, most stock dividends are not that high. Distributions are taxed differently than dividends since dividends have special taxation rules.
- dividend – A sum of money paid regularly (typically quarterly) by a company to its shareholders out of its profits (or reserves), Once dividends are disbursed, the share price declines by the total of the per share distribution to the shareholders.
- dividend capture strategy – A dividend capture strategy is a timing-oriented investment strategy revolving around the purchase and sale of dividend-paying stocks. Dividend capture is specifically the practice of buying a stock just prior to the ex-dividend date in order to capture the dividend, then selling it immediately after the dividend is paid. The purpose of the two trades is simply to receive the dividend, as opposed to selling at a profit. We do not use the dividend capture strategy here at Crane Capital, instead we buy the stock up to 14 trading days leading up to the ex-dividend date and we sell the stock 1 day before the ex-dividend date and thus we make a larger gain than what we would have received if we captured the dividend.
- dividend declaration date – The declaration date is the date on which the board of directors of a company announces the next dividend payment. This statement includes the dividend’s size, ex-dividend date, and payment date. Declaration date is also referred to as the “announcement date.”
- dividend payment date – A payment date, also known as the pay date or payable date, is the date on which a declared stock dividend is scheduled to be paid to eligible investors. This date can be up to a month after the ex-dividend date. However, the stock price may fall on the payment date to reflect the dividend payment.
- dividend record-date – The record date, or date of record, is the cut-off date established by a company in order to determine which shareholders are eligible to receive a dividend or distribution. The determination of a record date is required to ascertain who exactly a company’s shareholders are as of that date, since shareholders of an actively traded stock are continually changing. The shareholders of record as of the record date will be entitled to receive the dividend or distribution, declared by the company.
- dividend reinvestment plan – A dividend reinvestment plan (DRIP) is a program that allows investors to reinvest their cash dividends into additional shares or fractional shares of the underlying stock on the dividend payment date. When we talk about a DRIP here at Crane Capital we are making the assumption that this is not an automatic reinvestment, instead we are analyzing what the most profitable day to reinvest on is and we setup our trading calendar to reinvest our shares on that specific day (X trading-days before the ex-dividend date). A dividend reinvestment plan is a specific plan put together for each stock we want to reinvest in over time.
- dividend reinvestment position – A dividend reinvestment position is a 1 share or multiple shares of a stock you purchased as part of your dividend reinvestment plan for a specific stock.
- ex-dividend date – The ex-dividend date, or ex-date for short, is one of four stages that companies go through when they pay dividends to their shareholders. The ex-dividend date is important because it determines whether the buyer of a stock will be entitled to receive its upcoming dividend. Here at Crane Capital we will use the term ex-dividend date when referencing a dividend’s ex-date and distribution’s ex-date we don’t make any distinction between this date when differing between payout types.
- fundamental analysis – Fundamental analysis is a method of measuring a security’s intrinsic value by examining related economic and financial factors. Fundamental analysts study anything that can affect the security’s value, from macroeconomic factors such as the state of the economy and industry conditions to microeconomic factors like the effectiveness of the company’s management.
- projected ex-dividend date – This is an estimated ex-dividend date for a stock that has not yet announced the real or “confirmed” ex-dividend date on the dividend declaration date. CraneCapital.net has an algorithm that runs everyday that will do all the analysis needed to determine when the next ex-dividend date will be based on previous ex-dividend dates. You will find these projected ex-dividend date value in the stock finder and portfolio tools.
- swing-trade – A Swing-trade is a style of trade that captures gains in a stock (or any financial instrument) over a period of a few days to several weeks. Swing traders primarily use technical analysis to look for trading opportunities. These traders may utilize fundamental analysis in addition to analyzing price trends and patterns. At Crane Capital our swing-trade window is within 14 trading days of the ex-dividend date, in other words the longest swing-trade you would ever enter into is 14 trading days in duration prior to the ex-dividend date.
- technical analysis – Technical analysis is a trading discipline employed to evaluate investments and identify trading opportunities by analyzing statistical trends gathered from trading activity, such as price movement and volume. Unlike fundamental analysts, who attempt to evaluate a security’s intrinsic value, technical analysts focus on patterns of price movements, trading signals and various other analytical charting tools to evaluate a security’s strength or weakness.
- trading-day – A day of the week in which the stock market is open for business. This is used in our analysis to describe how much time before the ex-dividend date you should buy a stock to enter a swing-trade. For example, if I say the buy date is 14 trading-days before the ex-dividend date (10/21/19) then the buy date is on 10/1/19 which is actually 20 calendar days before the ex-dividend date (10/21/19). So trading-days do not include the weekends or holidays when the stock market is closed.
- DRIP – Dividend Reinvestment Plan
- ex-date – ex-dividend date