Jn the morning, a “potential dividend alert” was issued for Air Lease Corp (NYSE: AL), on our DividendChannel.com Dividend Alerts service (a free email alerts feature). Let’s look at the situation in more detail, shall we?
First of all, what is a “Dividend Run”? This is an interesting concept that we first heard about at a previous ValueForum conference. And to better explain the concept, we need to start with the expected behavior of a title on its ex-dividend Date.
For those unfamiliar with the term, ex-dividend date marks the trading day on which any buyer of the stock is no longer entitled to the referenced dividend – in other words, to be eligible to receive the dividend in question, one would have had to buy his shares before the ex-dividend date.
All other things being equal, the stock price should decrease in the amount of the dividend on that ex-date (remember, this is “all things being equal” and of course other factors will drive the stock up/down on any given day). But think about it: if a buyer is entitled to a dividend of 0.185 before ex-date, but no longer entitled to this amount on or after ex-date, then this reduction makes sense! Because if the actions doesn’t drop of that same 0.185 the next day, then effectivelybuyers would effectively pay 0.185 After for the same share of shares.
But now think about this: if a stock is expected drop by the amount of the dividend (all other things being equal) on ex-date, so in turn, shouldn’t this stock be expected to ascend sometimes ahead a dividend? After all, if a dividend-paying stock had never risen and only fallen on each ex-date, then eventually, after enough dividend payments, those stocks would have fallen to zero. And that would not do any makes sense for a company that continues to make money and pay dividends. So indeed, “sometimes” before given a dividend, there should be some kind of built-in “pressure” for a stock to gradually rise in anticipation of that next cash dividend…in other words: pressure for the stock to have a potential Dividend cycle.
And notice that we put the word “sometimes” in quotes in that last sentence, because there are differing opinions among different dividend investors about Time range when it comes to capturing the effects of Dividend Run. Some like to invest (and then also sell) on specific target dates; others prefer to use some form of dollar cost averaging. Some like to invest shortly before the ex-div, keep the dividend, then sell on or after the ex-div date (having actually captured the dividend/received the income). Others like to sell the day before ex-date (the last possible day when the buyer of the shares will still “pay” the upcoming dividend) with the idea of trying to maximize capital gain. In this capital gains-focused scenario, a common time frame we’ve seen talked about is to buy about two weeks (ten trading days) before the targeted sell date.
For example, consider the AL dividend of 0.185/share which became “ex-dividend” on 3/17/22. The previous trading day — the last day a seller knows the buyer of their shares will expect that amount of dividend — AL shares closed at 41.38. And two weeks (ten trading days) before that, on 03/02/22, the stock closed at a price of 40.84. This means that in the last two weeks before the 0.185 dividend, AL gained 0.54 in price.
Thinking back to the last four dividends paid by AL, this strategy would have captured a capital gain greater than the dividend 3 times out of 4, with a total “Divvy Run” of +2.72 in capital gains. Besides, that outrun the total sum dividend amounts on these last four dividends, of 0.69. Here is the data:
|Ex-dividend||——Price 2 weeks before—»||——Price 1 day before—»||Execute win/loss|
|Division total:||0.69||Total Divvy Run:||+2.72|
In about two weeks, Air Lease Corp (NYSE:AL) will go ex-dividend for its final dividend of 0.185/share. Will Dividend Run history repeat itself?
Upcoming dividend: 0.185/share
Date ex-division: 06/06/22
Payment date: 07/08/22
Dividend frequency: quarterly
Full AL Dividend History »
As the saying goes, past performance is never a guarantee of future returns. But one thing is certain: for investors who count Dividend Runs among the tools in their arsenal, AL is a good dividend stock to know about and have on your radar screen with its implied annualized yield of 2.06%.
Stay tuned for future Dividend Run contestants, and if you’d like to receive email alerts straight to your inbox, sign up for our free Dividend Alerts feature, courtesy of DividendChannel.com.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.