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The Art and Science of Dividend Runs

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This morning, a โ€œPotential Dividend Run Alertโ€ stirred up some excitement for Patterson Companies Inc (NASD: PDCO) investors, thanks to our DividendChannel.com Dividend Alerts service. Letโ€™s delve into the details, shall we?

Starting with the basics, what exactly constitutes a โ€œDividend Runโ€? This intriguing notion, initially spotlighted at a ValueForum conference, hinges on the anticipated stock behavior surrounding its ex-dividend date.

If youโ€™re not well-versed in the lingo, the ex-dividend date signifies the moment when new buyers of the stock miss out on the impending dividend payout. In essence, to partake in the dividend, one must have bought shares prior to this date.

Under normal circumstances, the stock price is projected to decrease by the dividend amount on the ex-date. This change occurs because, logically, if buyers are entitled to a 0.26 dividend before the ex-dividend date but forfeit this right on or after that date, it follows that the stock price should fall by the same 0.26 โ€“ otherwise, buyers would essentially be paying a premium for the same shares.

Consider this: if a stock is poised to dip by the dividend amount (all else being equal) on the ex-date, shouldnโ€™t it consequently experience an uptick at some point before the dividend distribution? In reality, if dividend-paying stocks solely decreased in value on every ex-date without ever rebounding, their worth would ultimately plummet to zero. This scenario defies all logic for companies consistently generating profits and distributing dividends. Therefore, there exists an intrinsic tendency for a stock to climb gradually in anticipation of an upcoming dividend โ€“ this is what we call a potential Dividend Run.

There exists divergence among dividend investors regarding the ideal timeframe to capitalize on Dividend Run effects. Some prefer to buy and sell on specific dates, while others opt for dollar-cost averaging strategies. For those inclined towards capital gain, a common strategy involves purchasing shares roughly two weeks before the targeted selling date.

For instance, letโ€™s examine the 0.26 per share dividend distributed by PDCO on 01/18/24. The day before โ€“ the final opportunity for sellers to ensure that buyers would receive the dividend โ€“ PDCO closed at 29.72. Two weeks (equivalent to ten trading days) earlier, on 01/02/24, the closing price stood at 28.69. Therefore, in the last fortnight leading up to the 0.26 dividend, PDCO witnessed a price increase of 1.03.

Reflecting on the previous four dividends paid by PDCO, adopting this strategy would have yielded a capital gain exceeding the dividend amount in all four instances, translating to a collective โ€œDivvy Runโ€ profit of +2.7. Surprisingly, this surpasses the cumulative dividend payouts which amounted to 1.04 across those four dividends. Hereโ€™s a breakdown:

Ex-Dividend โ€”โ€”Price 2 Weeks Priorโ€”ยป โ€”โ€”Price 1 Day Priorโ€”ยป Run Gain/Loss
01/18/24 0.26 01/02/24 28.69 01/17/24 29.72 +1.03
10/19/23 0.26 10/04/23 29.91 10/18/23 30.93 +1.02
07/20/23 0.26 07/05/23 32.17 07/19/23 32.46 +0.29
04/20/23 0.26 04/04/23 26.34 04/19/23 26.70 +0.36
Div Total: 1.04 โ€œDivvy Runโ€ Total: +2.7

In approximately two weeks, Patterson Companies Inc (NASD: PDCO) is set to go ex-dividend for its latest dividend payout of 0.26/share. Will history repeat itself with another Dividend Run?

Donโ€™t forget:

  • Upcoming Dividend: 0.26/share
  • Ex-Div Date: 04/18/24
  • Payment Date: 05/03/24
  • Dividend Frequency: Quarterly
  • Full PDCO Dividend History

While past performance doesnโ€™t guarantee future yields, one thingโ€™s certain: for investors leveraging Dividend Runs as a strategy, PDCO emerges as a promising dividend stock boasting an implied annualized yield of 3.94%.

Watch this space for more potential Dividend Run contenders, and sign up for our complimentary Dividend Alerts service at DividendChannel.com to receive timely updates directly to your inbox.

Further Reading:

โ€ข Cheap Industrials Stocks
โ€ข NBR Videos
โ€ข Top Ten Hedge Funds Holding HCAP

The expressed views and opinions herein represent those of the author and may not align with Nasdaq, Inc.โ€™s perspectives.

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