Looking at the above chart you will note that Singtel has 2 peaks in its prices in the last 1 month. The former due to the build up of its price till the Ex-dividend date of 25 November & the latter due to the announcement of the digital bank’s licenses by MAS. The consortium comprising of Grab-Singtel was awarded the digital bank license on 4th of December, Friday, at approximate 7pm after the markets closed. The price had a short sharp rally on 6th December, Monday, before a gradual decline to approximate 2.30ish now.
Hence, using the above as a case study I will attempt to explain briefly my thoughts on what are the salient conditions to consider when deciding to sell a share near the ex-dividend date.
Before we begin, you will need to understand 3 simple but important terms:-
- Ex-dividend Date: Date you must purchase the stock before to receive dividends. (i.e. you must purchase before 25th November to get the dividend for Singtel in 2020)
- Record Date: Date you must be recorded as a shareholder of the company to receive dividends.
- Settlement period (T+2)
You may wish to click on the links above to get a fuller understanding of the process of receiving dividends.
For Singtel as a company, my initial plan was to buy it due to its relatively low price. It was at its 12-year low due to an introduction of many new telcos that has not only shrank the percentage of the market Singtel owns but has also created a wave of price wars that has left most of the telcos battered and not profitable. However, my thesis for purchasing Singtel was that it was not only the main telco of Singapore, it also owned most of the infrastructure for the existing telcos. In addition, I was extremely optimistic that Singtel-Grab would be issued the digital banking license. Singtel & Grab are both headquartered in Singapore with large investments in the company coming from Temasek. Their chances of obtaining the license was very high. My initial plan was to sell it on the hype after announcement of that Singtel is granted a digital bank license.
Hence, the question is would it be sensible to sell on 25th November 2020, the highest price in the month at 2.50ish? On hindsight, it would be optimal to sell it on the 25th November as it is the highest 1-month price. This is even accounting for a 5cent dividend you would be getting if you sold it after the ex-dividend date. However, considering my above plan, it would not be sensible to sell it on 25th November as my plan had not materialized. The digital bank license have not yet been announced.
Just to consider this in a more holistic view of most stock purchases, the main consideration is why are you even thinking of selling the stock? The very thought that you are planning to sell a stock means you have a bearish sentiment towards the company and feel that the price is currently overvalued. Hence, I am of the opinion that in 90% of the scenarios you should sell off the counter before ex-dividend date. The price of a stock has a tendency to rise near to the ex-dividend date as most buyers will try to “catch” the dividend, making the sentiment of a stock more bullish than normal.
However, when considering the purchasing of a stock before or after ex-dividend date, I am of the opinion that there is no difference. The general pattern of stocks is that the price of a stock would drop by the same amount as the dividend declared for that year after the ex-dividend date. There should be no overall material difference for a stock that is not overvalued, which is known as the dividend effect. I know that what I have just mentioned in these 2 paragraphs may seem contradictory but it is not. In the first scenario, you are looking to sell a stock as it is overvalued, the value of the stock often converges to its true value. Hence, time is a factor in giving the counter chances for the price to converge with value of the stock. Additionally, the sell pressure that comes after the ex-dividend date may be a catalyst for the stock to converge to its true value.
Conclusion: Sell overvalued stocks before ex-dividend dates, ex-dividend dates should not affect your purchasing pattern of stocks.
Just to continue my analysis of Singtel, I really should have sold on the 5th of December right after the news of digital bank license. Now I am currently stuck looking for the next bullish period to offload my Singtel shares. My view of the digital bank for Grab-Singtel is that the next 3-5 years will be vesting phase of their investment in the joint venture where the Bank is set up and the business is grown. The profits of the digital bank will only start to come in after the 3 year of the Bank. In addition, I understand that Singtel is currently building up its 5G network, which has been hyped up a lot. However, the 5G network will likely take a couple of years to build up. Just a brief science explanation, 5G operates on a higher frequency wavelength than 4G which means that the distance between each 5G node needs to be closer than that of a 4G node. This means that not only will it take longer to build a 5G network, the costs of that network will also be much much more expensive. Hence, for the above reasons, I am pessimistic about Singtel’s near-to-mid-term results.
Disclaimer: I am currently vested but looking to exit my Singtel purchases.