In the U.S. stock market, the average dividend yield is 2 percent. Short term traders are not necessarily trying to create some extra income by establishing a strong portfolio of dividend payments, but they should still be concerned about which companies are paying high rates and which are not. In the end, shareholders look forward to their quarterly dividend payments, but traders should beware since excessive dividends can actually lower a stock’s short term price.
The impact is usually short term, especially if the company is healthy. And for a company to have a high dividend, they would need to be healthier than the average. But, when looking to trade a company, we need to be aware of these things so that our results are not skewed as a result. Trading a strong company with a distinct upward trend seems like a no brainer. Go long. If you’re trading binary options, go with a call option. This all makes sense. But, if that company announces that they are raising their dividend from 4 percent to 5 percent, suddenly an immediate 1 percent (roughly) of that company’s value disappears. For a trader that is caught unaware, this can damage the success rate of their trades.
Companies like UK based Vodafone, AT&T, CenturyLink, and Mattel all have higher than average dividend payouts, all at 5 percent or higher. Some of these are included on binary options brokers’ platforms, others are not. Still, being aware of the fact that they have big dividends, and that some of them have been consistently raising their yields is something that you need to pay attention to. You also need to give attention to when dividend payments are scheduled, and when ex-dividend dates are announced. Simple company financial trackers, like those found on Google or Yahoo, will give you this information easily. You can also sign up for various email subscriptions that will deliver the information to your inbox.
Technical indicators should be the primary source of your decision making when scouting out trade opportunities. For those that focus on momentum based trades, such as what the ultra short term crowd looks at, moving averages and MACD are your best bet. Make sure that you are looking at appropriate timeframes for creating the right opportunities, and don’t ever rush things. When you become impatient, your room for error drastically increases. This can make a profitable trader a losing one, and that completely defeats the point of pursuing this. Time things right and make sure that you have the proper technical framework for a trade. Then, before you execute anything, ensure that the proper fundamental analysis has been done. Are there updates on dividends that have come into play? Is the company’s overall trend in keeping with the technical information that you have uncovered? These, and many like them, are important questions, and skipping over them can lead to unnecessary losses. Trading is tough enough, you shouldn’t be making it even harder on yourself.
On the other hand, value investors should be focusing on companies that have a high dividend rate and are getting set to increase in price. If you’re looking to keep your money in a company for longer than a year, finding a company with a 5 percent dividend, plus has analysts saying that it will increase in value by 5 percent over the next 12 months, would be a goldmine. This will help multiply your earnings at a slightly faster rate. But short term traders should mainly keep this in the background, and be checking the companies that they find with profitable technical indicators against this to make sure that they stay profitable for the duration of their trades.