What about dividends?

[garilou]

Sorry if this has already been discussed. I've made a search with the word dividends, and the search return a post by SSP where I could read in the search result

"... . Returns reflect the reinvestment of dividends and other earnings. "

Are you keeping  ...
http://www.superstockpicker.com/forum/index.php?topic=3.0
date posted: 04 September 2006, 17:26:12
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But when I go to that post, it looks like that part about dividends is not there anymore.

So here is my question:

DAY.UN is now part of PPS UPMv4.It has been in UPMv1 since August 5, and in the Price Momentum Monthly since July 28.

When you buy a stock that gives pretty high dividends (like most of income trusts, the dividends/interests are normally paid each month, in the case of DAY.UN, 0.13/share/month or 12.7% yearly if the price is $12.61 )
In mutual funds, one can usually choose to reinvest the dividends in order to have more and more units. (But who wants mutual funds!!!) This is not the case with income trusts.

• Do you include those dividends in your % performance for that stock?
  
• Depending on which portfolio we look, the weights are different, because the performances are different.
  But whatever portfolio someone is invested in, if that person follows strictly your strategy would you expect (always in the theoretical perspective) him/her to use those dividends/interests buy a few shares more each month? According to the reallocation rules this would have to be spread between the different stocks of the portfolio, so I guess in practice, this would be quite ridiculous.
  

OK I must admit that this question is purely theoretical because anyway, looking at the statistics you have published recently, only 2 portfolios hold stock for periods that can be counted in months.

So my guess is that SSP does NOT take the dividends into account to calculate the performance, Even less so when one thinks that the dividends can come in after you have sold the stock.

But what for the investor? Should she/he include the dividends in the calculation of his performance?
I personally do, because very often the dividends of an income trust at least partially compensate for downward moves of the share price, and because I hold an income trust for much longer than other stocks.

Louise   

[Super Stock Picker]

Hello Louise,

So, the answer is yes, we do take the dividend into account when we calculate our performances.

But, yes it is very unusual as it happens only a few times here and there.

The way we do is that on the day a dividend is paid, we back adjust our buy price by the dividend amount. That's the usual way you will find in database to track dividend adjusted prices.

That way, we impact the dividend in our calculation as the performance of the stock on day is inflated by the dividend amount and the recommendation performance as well.

In theory, a dividend would imply to readjust the whole portfolio as the weights are indeed modified (and our formula takes into account this weight modification due to the dividend). But the amount would be so small (for a portfolio of any size) that it is ridiculous to do so. The dividends are better to go in the cash line and it will be reallocated next time a buy or sell occur.

Does that answer all your questions about dividend?

[garilou]

Yes indeed it answers all my questions.

The way we do is that on the day a dividend is paid, we back adjust our buy price by the dividend amount.

Good idea, I would not have thought to do it so.
I used to just add them to my gain (loss) (Well not for the income tax report naturally)

That's the usual way you will find in database to track dividend adjusted prices. 

In databases, yes I knew, but not in portfolio tracking: I also track my portfolio on GLobeInvestor, and they keep the original buy price, and on the day the dividends are paid, they automatically add them to my cash balance.

It's good to know though: so eventually, if I understood well, you "buy price" for DAY.UN will be lower as it was at first.

I agree so totally that it would be ridiculous to reallocate each time!

Thanks,

Louise