Boost Your Stock Market Returns With a CFD Dividend Trading Strategy

Today we’ll look at the top 3 reasons why you should consider trading CFDs for dividends.

1. You get paid your CFD dividend on the ex-dividend date.

You don’t have to wait for the payment date

2. You can potentially boost your stock market dividend play 3-5 times the norm

3. Investors pave the way to for a CFD dividend trading strategy

CFD Dividend basics

Let’s get the important basics out of the way before discussing the other strategies.

If you own a CFD you are entitled to the dividend just as if you owned the stock providing you own the stock prior to the ex-dividend date. Those CFD traders who are long the CFD will receive a credit to the amount of the dividend on the ex-dividend date.

Those CFD traders who are short will get a debit to the amount of the dividend and some CFD brokers in their PDS state they may deduct the franking credits as well (although this is not common in practice).

Franking Credits

CFD traders are not entitled to any franking credits that you might be used to for trading stocks. Franking credits are where the company has tax taken out so you don’t have to pay tax on 100% fully franked dividends.

Let’s have a look at the Top 3 CFD trading strategies

1. You get paid your CFD dividend on the ex-dividend date. You don’t have to wait for the payment date

Most CFD brokers will pay you the full amount of the dividend on the day it goes ex-dividend. If you trade the ASX stocks you would normally have to wait for the payment date which can be several weeks later.

2. You can potentially boost your stock market dividend play 3-5 times the norm

If the CFD you are trading pays a 5% dividend and you are trading at 3-5 times leverage then you can potentially boost your dividend yield by 3-5 times that amount. Instead of receiving 5% you can now earn a dividend yield of 15-25%.

Although this sounds impressive you need to keep in mind that when a stock or CFD pays a dividend it will normally fall the amount of the dividend. For example if Woolworths pays a 65
cent dividend then it will in theory fall 65 cents on the ex-dividend date giving you a capital loss of 65 cents. So you make 65 cents on the dividend and lose 65 cents on the capital fall. This leaves you square and leads to the next point…

3. Investors pave the way to for a CFD dividend trading strategy

Investors love dividends as it provides residual income for next to no effort. Investors also love fully franked dividends and in order to get that on the ASX stock market you need to own the stock at least 45 days prior to the ex-dividend date.

This can give rise to an uptrending stock as result of people buying prior to the ex-div date. Your role in the CFD dividend trading strategy is to get set on confirmation of uptrend of those stocks paying a dividend and then sell just prior to the stock going ex-dividend. This means you’ll take advantage of the capital gain prior to the ex-div date.

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