Basics: Be Aware of Dates

Whether you’re a casual investor or an active investor, you should do occasional research about the companies that you own. It’s fine to keep up with every major news item that comes out about your company, but you should at least be aware of three key dates (listed below) and make appropriate decisions.

1) Earnings Reports Release Date

Much volatility does occur right after the release of quarterly earnings. I like to use Google Finance to find the dates that companies release their earnings under “Events”. Then if you use Google Calendar, you can conveniently add the earning release date to your calendar of events so you don’t forget about it. If you believe that a company will not meet analyst expectations or that it will be hard to maintain a level of growth in the current economy, it may be wise to sell before the earning release. On the other hand, if you notice that a company has high cash flow, low debt/equity ratio, and has a history of beating expectations, then it might be good to wait for exceptional earnings that will surprise investors and propel your stock even higher.

2) Dividend Dates

– Be aware of how often your stock pays dividends. Stocks don’t pay dividends like banks pay you interest on a monthly basis. General Electric (GE) pays dividends four times a year while China Mobile (CHL) pays dividends twice a year.

– Know when the ex dividend date is. If you aren’t an owner on a dividend paying stock before the ex dividend date, then you are not entitled to the dividend for a particular period. The payable date (dividend date) is usually a week or two after the ex dividend date so that dividend paying companies have adequate time to ensure investors that are entitled to the dividend are paid.

– Real World Example on how to miss a dividend payment:
Let’s look at JP Morgan (JPM) that pays dividends four times a year. Say you bought JPM on April 4, 2007 (one day after the ex dividend date), then you are not entitled to the .34/share dividend. Even if you bought this financial holding company on April 3, the ex dividend date, you are still not entitled to the dividend. Therefore you would have to wait until the next ex dividend date on July 3, 2007 to profit from a .38/share dividend.

3) Taxes on Short Term & Long Term Capital Gains

The tax rate on short term capital gains and long term capitals gains are different and generally apply more to long term investors more than short term investors. Short term capital gains are stock investments that are held less than one year and are taxed as ordinary income. Long term capital gains are stock investments held more than a year and taxed at a rate of:

a) 5% for the 10% and 15% tax brackets
b) 15% for the 25% and higher tax brackets

If you are near a holding period of one year and you think that the stock is going to trade flat, then just wait it out and take advantage of the long term capital gain tax benefit. If you are a few months away from the one year holding period and you believe that the stock will drop significantly, it may not be worth saving 5-15% off your capital gains. Remember, locking in a 15% gain on your investment is better than watching your stock fall below the price you paid and incurring a net loss.
Regardless of how you invest, it would be wise to be aware of earning release dates, dividend dates, and the cutoff date for a short term capital gain tax to become a long term capital gain tax. This is a major step to become a well informed investor.


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