You should start seeing dividend transaction in your running portfolios by tomorrow. When we update the prices (around 10PM currently, but will be 7PM soon) we do these additional steps:
We check for holdings that have dividends with ex-date of the day of the update.
If a dividend is found a dividend transaction will appear for that stock with an amount of 0$. The note on the transaction will say when the pay date is.
On the pay-date of the dividend the cash will be added to the portfolio
Marco
NOTE: Dividends in simulations will soon be available.
Correct. The dividends will affect the total return of the port. However it does not change the return of the position. For example the Sell function GainPct does not take the dividend into account. However… when dividends will be incorporated in sims they will also be incorporated in the price series, so if you use price functions like Close(0)/Close(20), the ratio will include any ex-date dividends.
fantastic news Marco, thanks!
There are many questions about how it will affect different functions. I guess It would be best to start testing (especially when available in Sims). Or if there a document outlining the way divs will behave ?
Dividends in sims should work the way you expect them to. Ex: added on ex date, paid on pay-date, etc.
The main thing about dividends in simulations is that the price data is adjusted for dividends. The adjustment is made on the ex date since that is when the price takes a dive depending on the size of the dividend. This makes things like moving averages work avoiding false signals.
We were debating whether to adjust price data only for Special dividends since those are typically large (ex. Microsoft $3 special dividend on nov 2004) but decided to do it for all dividends. We noticed that popular TA sites like StockCharts use price series fully adjusted for divs.
The way the price is adjusted for dividends is using the previous day close and the amount of the dividend to come up with a pseudo split.
Dividends in sims is expected to be live sometime next week.
Hi Marco,
So when is the cash added to the port, if at all?
Here is a scenario, how would it work?
Someone had $3500. He bought 100 shares of LYB on Nov 7 2011 on the open for 34.9. On Nov 21 the stock closed at 34.5 . It went ex-div (dividend of $4.75) and opened on Nov 22 for 29.5. It currently (Close of this Friday 12/16/2011) fetches $32.05. The buyer who paid $34.9 lost $2.85 on the stock (32.05-34.9), but gained $4.75 on the dividend, so his net holding is 100 shares of LYB (loss of $285) and cash of 3500-3490+475=$485. Net assets value = 3205 + 485 = 3690, so the net gain for the period is $190
Is the following a correct description how the scenario would play under the new Sim and Port capabilities:
A port starts on Nov 7 with $3500 of cash. It buys 100 shares of LYB for an adjusted $30.15 on Nov 7 open (34.9 - 4.75 = 30.15) so the port holds 100 shares and $485 cash as of Nov 7 close. There is no gap in price on Nov 22, and therefore on 12/16 close the current value of $32.05 means that the stock appreciated by $1.90. The port’s current value is 3205 + 485 = $3690. There was no change in the port’s cash holdings at any time after the position was opened, no cash was added.
Marco, is the above correct, and if so, how does it fit with the statement regarding pay-date? [quote]
Dividends in sims should work the way you expect them to. Ex: added on ex date, paid on pay-date, etc.
[/quote]
Your first scenario is the correct one. We’re making sims as close as possible as if they were running like live ports. So put yourself in that frame of mind.
The pay date for LYB dividend is 12/16/11 (yesterday) so up until then the sim would not have the money for other purchases and would show a loss until then.
Also when a sim ends all outstanding “dividend receivables” are added on the last day of the sim. In the above example if the sim ended 12/15/11 it would still show LYB on the last day.
It’s easier to just play with it. I think I’ll release it later today since all seems ok.
Hi Marco,
That is good solution and indeed imitates real life perfectly. It also means that there is no price adjustment of the stock by the dividend amount.
I tested the scenario on the public sim below (BTW, thanks much for enabling divs on sims!), here it is. [url=http://www.portfolio123.com/port_summary.jsp?portid=853699]http://www.portfolio123.com/port_summary.jsp?portid=853699[/url]
The price jumps are on the ex-date and on receiving the dividend are clear. The stock is purchased for its real value (not adjusted) and carries its real value. The outcome is as expected, I like it this way.
And yet you commented:[quote]
The main thing about dividends in simulations is that the price data is adjusted for dividends. The adjustment is made on the ex date since that is when the price takes a dive depending on the size of the dividend. This makes things like moving averages work avoiding false signals.
[/quote]
What does that refer to?
Thanks, Z.
