Another case for DRIPping

I went back and set up a screen to choose a small handful of stocks with a tight enough set of criteria that only 28 made the list. The main items were that they had a 5% dividend yield or higher and a few other price, volume minimums. I did look for stocks that had their 50SMA higher than their 200SMA and the price had to be above the 200SMA. These were really just to get a small list rather than looking specifically for any performance, I could have just as easily reversed the technical items and and come up with a list that worked just as well.

A good number of the candidates were of the AAPL, BIP and D variety, trending up since early 2009 but some were not. I chose the very first one that bucked the trend and that had over three years of history... Exelon Corp (EXC).

Here is the chart:

Using the same $1,000 per quarter investment and just going with buying based on the last trading day of the month before the record date, the vertical green lines.

If there were no dividend this would be not so great, total ROI is in the red by 3.25%, which is better than it was in 2010 but the timing of when I might need my money might correspond with a down time, and that would suck. This is the main issue that I initially had with DRIPs.

With dividends included and re-investment applied as per the DRIP, the results are as follows:


Adjusted Cost Base (ACB) = $42.44
Total invested  = $12,000 (302 shares)
Current price = $41.11
Total value = $12,431
Total gains (on paper) = $431or 3.6%
Final dividend payout = $145.04

Dividend Re-Investment Plans are for long term investing with no real eye toward selling. As much as this goes against my desire to continue with an active trading plan, I definitely see the advantage in this lethargic style of investing. The only investments that I have right now are of this type, which says a lot for DRIPs in the first place. It was the first investment strategy that I investigated and, while it may not be the last, it certainly will stand the test of longevity in my books as i don;t plan on closing out my DRIPs. In hindsight I do see that I could have benefited by shutting down my trading at it's peak and shifted my cash into these instead. Of course, the peak is not always attained in any trade or plan, hindsight as it is.

Being that I am in Canada, I suppose that I should do this same study with Canadian stocks, or at least those that have a Canadian stock offering. The tax implications are easier to handle as is the acquisition of the starter stocks for the DRIP... which I haven't even mentioned here. There just aren't as many offerings in Canada as in the US.

Jeff.

BIP, Other Stocks Trending, the DRIP still shines

I am making a little point in that the AAPL was no "one hit wonder" and there are many more stocks that did the exact same thing. In that case choosing trades was fairly easy as any decent company was hitting a trend around the same time, which makes for a great trading environment as long as the total account is positioned with the possibility of a change in the trend being covered.

Brookfield Infrastructure Partners, (BIP)

I annotated the chart and it pretty much says it all:

Buying and selling according to the chart without regard to any dividends using $1,000 trade sizes yields a 21.2% profit, about $843.

Back to dividend re-investment I noted the next chart two ways, one for straight timed buying to be just ahead of the record dates and opportunity buying. Opportunity buying consists of considering buying anytime in the 30 days prior to the record dates if the price is under the 50 or 200 SMA lines.

Timed buying:                                                          Opportunity Buying:


Adjusted Cost Base (ACB) = $17.60
Total invested  = $10,000 (590 shares)                    614 shares
Current price = $28.17
Total value = $16,640                                              $17,305
Capital gains (on paper) = $6,640or 66.4%              $7,305 or 73%
Final dividend payout = $71.22                                 $73.79

Basically, either method works well so I might split the difference between them. The thing about opportunity buying is that sending in a cheque to buy through the DRIP leaves the timing up to the processing department at the transfer agent... which means timing is not great. There is some return lost as a result of true timing using a broker as there are commissions and even share purchases with a synthetic DRIP (no partial shares counted).

Jeff.

Another Example with Dividends Added, Dominion Resources (D)

In my last couple of posts I covered Apple as a trade subject. While that may smack of what the trading community calls "curve fitting", making the trade work according to the chart, I like to select a plan that would be flexible enough to work over any circumstance and do some quick analysis of the period preceding the trade period to see if my plan would have been executable and supported through the continuance. Basically, determine if the trades would have been taken based on my rules.

The Apple trades were based on the 50SMA crossing over the 200SMA and using that as a guide for the following trend. Not much curve fitting there, just straight trend trading. Recognizing the initial trend early may be key but acting on the information is even more critical as is sticking to the plan.

Here's another example of a very similar setup and follow through. I won't get into various methodologies of the trades but it is pretty obvious that using a similar trade plan as I outlined for AAPL would have worked here. $1,000 incremental buys based on a simple trend following strategy that sets up after the crossover.

Dominion Resources Inc. (D)

The short analysis result:

Adjusted Cost Base (ACB) = $38.86
Total invested  = $7887.90 (203 shares)
Current price = $53.08
Total value = $10,775.24
Capital gains (on paper) = $2,887.34 or 36.6%


While a little more sedate than the Apple run up it is still a pretty good return based solely on capital appreciation.

Then add the dividends and the results get a slight tweak of about 6.5% or $506.

Their next dividend should be $0.4925 and they have a full DRIP which leads me to the real topic of this post.

Assuming that I just send in a regular quarterly cheque for $1,000 and buy the stocks directly shortly before the ex-dividend date (the date that they count the shares as mine for dividend payment for that quarter) and assuming that the dividends are just re-invested.


Adjusted Cost Base (ACB) = $39.38 (slightly higher than the $38.86 above)
Total invested  = $10,000 (269 shares with re-investments, up from the previous  count of 203 shares)
Current price = $53.08
Total value = $14,313 (again, up from $10,775.24)
Total gains (on paper) = $4,313 or 43.1% (compared to $2,887.34 or 36.6%)
Current dividend payout = $121.72

Keep in mind that the current dividend payout that would be re-invested is up to $121.72 per quarter, a far cry from an income level payout but certainly a solid start for a two and a half year investment. I've done some extrapolations based on 30 year investments and smaller contributions with wildly fluctuating prices and the long term numbers, even if the stock tanks, are often very good due to the dividend creating a sort of residual income.

Jeff.

AAPL with an investment twist

In my previous post regarding Apple, I briefly outlined two simple strategies for trading or investing in the stock. I have traded the options on Apple a few times, profitably, but they are more complicated and not for the faint of heart... at least given the short term trading that I did with them, so I'll skip that particular route.

My current "default" trading is more investment oriented as I am in a few Dividend Re-Investment Plans (DRIPs) so I thought I might spin this a little differently. While there are no dividends with Apple (and I don't blame them as they don't need the dividend spin to push stock any more) the capital appreciation has been substantial on it's own. With dividends the goal is long term dividend growth and re-investment, not so here. With no dividends this means that holding for the long long term may not be the best idea so an exit strategy is necessary. In this case I use a trailing stop order, manually adjusted based on the activity of both the price and  my trading.

Here is the newly annotated chart showing the entry trades with green arrows. Stops are initially set at the short horizontal red lines and moved up as the price moves up and the 200SMA continues trending.

The plan is to scale into the trade in increments. Each time the price nears the 200SMA a new purchase is made. This serves to reduce the risk of getting completely into a trade and having it go South in a hurry. The small entry with a tight stop is built upon gradually. In this case, for use as an example, I figured the valuations based on maximum purchases of $1,000.

Trade entries were made as follows:

8 shares at $120, stop set at $110 (stop loss $80)
5 shares at $200, stop moved to $180 (stop gain $380)
4 shares at $240, stop moved to $220 (stop gain $820)
3 shares at $320, stop moved to $310 (stop gain $2,320)
2 shares at $355, stop moved to $340 (stop gain $2,890)

Note that the stops are only there to catch should the price plummet right after the additional shares were purchased. As soon as the second trade is placed the stop is actually in the money as well, therefore it becomes a profit protection more than a stop loss. 

Adjusted Cost Base (ACB - AKA average price per share) = $208.64
Total invested  = $4,590 (22 shares)
Current price = $402.64
Total value = $8,858.08
Capital gains (on paper) = $4,268.08 or 93%

Here is a two year chart showing the current trend line (green) with the consolidation periods noted with the red lines.

Using the long term trend line as the bottom of each of the triangles, the opportunities for smaller shorter term trades shows up as does the current possible change in trend. Note that the 200SMA has broken the trend line, the consolidation is more pronounced and has it's own lower trend line that coincides with the long term one.In all of the previous trades short selling was not considered as the trend was so obviously up. Now, however, given the change in the pattern I would look at the possibility of short selling as a good short term Counter Trend Position trade assuming that I either sold off the entire long position or had not been trading long term in the first place. You are not allowed to hold long and short trades simultaneously anyway.

Over the next few months I would look for some horizontal price action and perhaps even a shift to a horizontal trading channel to be established. This would have me bring the stop order up to just under the 200SMA or the trend line.

Side note: I toyed with the  idea of "side betting" in just buying a fixed number of additional shares at each purchase point and selling them when the price came within $10 of the upper trend line just to grab a  few extra dollars here and there. Doing this, according to strict rules, produced a little over $600 over the course of the period.

Keeping in mind that this is a small part of any trading plan and not really aimed at producing an income now the overall returns are very good. Of course there could easily be another stock in the portfolio that might not work out so well. Choosing established companies with good records of previous trending can be pretty easy to do. Mix in some dividend producers, short selling and varying the industry mix according to some other interesting plans makes up for the potential for losers.

Jeff.

AAPL, short chart analysis

I've taken a break from all things stock related for a while, I'll be back here and there in the future I expect as I can't help but play about with the charts. Less or no day trading, all longer term activity.

I received, and completed, a survey from Apple regarding the recent purchase of my iPhone.

Another email contained a stock chart for Google indicating a high price and that "they" have been long GOOG since whenever. I checked "their" stats and they are wrong more often than they are right.

The two emails spurred me to look at the Apple stock chart and see what is up. It's one of those stocks that is followed by, "I wish I had bought when....", but I could have bought and didn't for any number of reasons. The prime one was underestimating the product loyalty of the Apple crowd.

Here is the AAPL chart for the last three years with my notations according to a typical trend trading plan that I have used in the past. Of course this one could be played a few ways and I noted an alternate to the buy and hold plan with the green and red arrows, explanation follows.

At the point where the 50 day Simple Moving Average (SMA) crosses above the 200 day SMA, the stock is trending up and can be bought with a few plans in mind. Obviously buying and just holding would work, but seldom is that known so early on.

The alternate is to buy and set a tightish trailing stop (below the 50SMA), then plot the mean for the trend once it establishes placing the stop below the 200SMA which makes the trade profitable even if it stops out. The upper trend line can be plotted equidistant from the mean on the top side of the price at this point. Effectively, this is a mean reversion channel with a non-standard standard deviation of somewhere greater than 1 and creates a very wide trading channel or a safety stop for buy and hold.

Buy and hold:

Buy at $120 in May, 2009
Value now at over $400 or $280 paper profit, 233% ROI

Trend trading using the channel, ideal trades and only long, no shorting and no buy/sell optimization:

Trade 1 = $120 to $200
Trade 3 = $200 to $270
Trade 4 = $240 to $310
Trade 5 = $320 to $400
Trade 7 = $360 to $420
Realized profit = $360, 300% ROI

Other trades that MAY have been taken (circled in green):

Trade 2 = $190 to $270
Trade 6 = $360 to $410
Realized profit = $150, 125% additional ROI

I'll post a separate entry for an option for those who might like buy and hold with an investment twist.

Jeff.