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What is a dividend? A dividend is a payment made by a company to its shareholders to give back some of its profits or return. Dividends are most often paid to shareholders, annually, semi-annual, or quarterly.

Non annual dividends that are paid periodically are known as interim dividends. Companies can also pay dividends at their discretion, and these are known as special dividends. Companies that issue dividends are usually very mature and stable businesses with steady cash flow.

Index funds, or ETF’s will often also pay dividends from as they receive dividends from their underlying holdings. In Australia, well-known companies that issues consistent dividends include ‘Big 4’ banks, BHP, Rio Tinto Wesfarmers, and Qantas just to name a few. In the USA, the big banks such as JP Morgan and other mature company’s such as Walmart and Coke Cola.

Important Terms Dividend Yield - The dividend yield is the total value of all dividends paid in the year divided by the share price. Alternatively, it can be thought of as the dividend return on the market value of the share. Ex-Dividend Date – This is the date in which a holder of stock must possess the stock to receive the dividend payment.

Dividend Payment date – This is the date in which the payment is made. Do Dividends even matter? There are theories that suggest dividends don’t really provide any benefit for holders as they are just eating into the overall Compound Annual Growth Rate of the price.

This is because once a dividend is paid the share price should adjust to account for the payment that has been made to the holder. For example, company A has a share price of $100 and issues a $1 dividend. Therefore, after the payment date, the price should in theory drop down to $99.

Consequently, those who oppose dividends as opposed to the being paid a dividend it a holder of a top performing share could just sell a certain number of their units to in some respects pay themselves a ‘dividend’. On the other hand, companies that pay dividends generally allow the holder to participate in what is known as a ‘reinvestment plan’. This is a scheme in which the company allows holders to reinvest their dividends back into the company’s shares and use the payment to purchase more of those shares allowing for compounding.

These schemes often operate without needing to pay commission and sometimes the shares are discounted. The reinvestment plan also removes certain tax liabilities. For instance, look below at an example of theoretical share that trades.

Price = $10.00 Number of shares at inception = 1000 Total Investment = $10,000.00 Annual Dividend growth =1% Annual share price growth = 1% Time period = 10 years Below is the same share but with a change in the timeframe of 10 to 20 years. This highlights how important having as much time in the market as possible can make a huge difference to the overall returns of a reinvestment strategy/portfolio. The return for 10 years with reinvestment is around 1.32 times the amount for without reinvestment.

Having the same investment for an extra 10 years will yield a return a result 2.35 times better than if the dividends are aid in cash. Can you live off dividends? Dividends payments have created an ideal or goal in which traders and investors strive for is to ‘live off’ their dividends.

Creating a portfolio that is heavily weighted towards dividend stocks can be a way in which to have a periodic income to supplement a pension or salary. This process involves developing a large enough portfolio that can provide these periodic dividends to a level that will cover the cost-of-living requirements. Choosing high quality, high yielding investments can provide this outcome for those who are savvy.

Below is a list of ETF’s and ASX Listed Stocks with the highest recent Dividend Yields? List of ETF Code Company Price Yield Gross DRP 1yr Return IVV Ishares S&P 500 ETF $37.63 16.67% 16.67% Yes -10.40% IHVV Ishares S&P 500 Aud Hedged ETF $37.06 14.93% 14.93% No -16.90% HACK Betashares Global Cybersecurity ETF $7.57 8.99% 8.99% No -23.30% SLF SPDR S&P/ASX 200 Listed Property Fund $11.28 7.45% 7.52% No -16.01% VAS Vanguard Australian Shares INDEX ETF $91.89 6.92% 8.86% Yes -2.18% ILC Ishares S&P/ASX 20 ETF $28.95 6.67% 9.35% Yes +2.77% STW SPDR S&P/ASX 200 Fund $67.10 6.43% 8.42% Yes -1.19% A200 Betashares Australia 200 ETF $123.01 6.35% 8.35% Yes -0.98% IOZ Ishares Core S&P/ASX 200 ETF $29.87 5.96% 8.06% Yes -0.53% VHY Vanguard Australian Shares High Yield ETF $69.87 5.93% 8.31% Yes +5.46% SFY SPDR S&P/ASX 50 Fund $65.77 5.78% 8.01% Yes +1.78% VSO Vanguard MSCI Australian Small Companies INDEX ETF $64.70 5.54% 6.32% Yes -10.81% MVA Vaneck Australian Property ETF $21.20 5.14% 5.25% Yes -13.43% List of ASX Stocks Code Company Price Yield Gross DRP 1yr Return TER Terracom Ltd $0.99 20.20% 24.53% No +360.46% CRN Coronado Global Resources Inc $2.125 19.72% 19.72% No +40.26% MFG Magellan Financial Group Ltd $9.35 19.14% 25.46% No -53.25% YAL Yancoal Australia Ltd $6.53 18.85% 18.85% No +123.63% ACL Australian Clinical Labs Ltd $3.065 17.29% 24.70% Yes -43.24% NHC New Hope Corporation Ltd $6.67 12.89% 18.42% No +177.92% SIQ Smartgroup Corporation Ltd $5.41 12.20% 17.43% No -25.48% TAH Tabcorp Holdings Ltd $1.115 11.66% 16.66% Yes +13.99% BFL BSP Financial Group Ltd $4.80 11.36% 11.36% No +12.41% GRR Grange Resources Ltd $1.07 11.21% 16.02% No +30.49% LFS Latitude Group Holdings Ltd $1.42 11.06% 15.79% Yes -31.73% The final word Ultimately dividend portfolios can be a great step in achieving financial security and freedom and is also a great way to diversify a portfolio or trading strategy.

Many traders early on in their trading journey may jump into trading without knowing if their system or edge can be profitable. The most important metric that a trader should measure their system on is by using expected value. This essentially wors out the average return that the system will return for every trade that it makes, considering both winning trades and losing trades.

The formular for the expected value is written below. Expected Value = (Probability of winning trade X Average Winning Trade Value) – (Probability of a Losing trade X Average Loss) For example, Trader A - Wins 40% of their trades - Loses 60% of their trades - Average win = $20 - Average Loss = $10 Therefore, Expected Value = (0.4x20) – (0.6x10) = $2 This means over the long run the system will return $2.00 per trade made. This relationship describes any trading strategy or edge’s average performance per trade.

Therefore, by determining the expected value a trader can see how effective their edge will be excluding slippage and transaction costs in the long term. Risk and Return The relationship also shows that a strategy does not need to necessarily win every single trade to be profitable. The rule of risk and reward is that they are inversely correlated.

This means that the more a trader is willing to risk, whether it be size or distance to a stop loss the higher potential reward. Alternatively, the less risk a trader takes the lower potential reward. It doesn’t matter which type of trader you are often different personality types will gravitate to either more frequent winning and smaller winnings or larger winnings, but a smaller number of wins.

In fact, a trader may only need to be profitable on 20% of their trades if they can ensure that their average winning trades are more profitable by a factor of 5:1. A strategy that wins more frequently may only need a smaller average win vs its average loss. When testing a system, it is important that there is sufficient data to ensure the inputs for the above formula is accurate.

This means using data from various time periods and potentially across a range of markets to measure the Expected Value of the system. See below for the required a=Average Winning trade/Average Loss trade per Average win rate for a breakeven trading system. Ultimately it is vital that when assessing the performance of a trading strategy or edge to be able to measure the profitability of the system.

The best way to do this is by using expected value. Profitable trading strategies can be made with either a high win rate and low average W/L ratio or a low winning strategy with a high W/L ratio.

Corporate actions are activities that material effect an organisation and impacts the key stakeholders including shareholders and creditors. They can affect the stock price both in good and bad ways. Corporate actions are most often determined and voted on by the board of directors of the company.

Although sometimes, shareholder will be given the chance to either vote or participate in these actions such as placements. Why are they important? Corporate actions materially affect the share price are highly important to understand.

This means that the actual value of the company or the share price will change due to one of these actions. This also means that they can be great catalysts for volatile trade opportunities Examples of Common Corporate Actions Dividends Mature companies or companies who record consistent profits may issue dividends to their ordinary shareholders. It is important to understand what a dividend is.

It is a company distributing a share of its profits to give back to investors. This dividend is paid to investors and means that once the dividend has been returned the share price must be adjusted to reflect the reduction in future cashflow. Dividends may also be issued via a reissuing of shares or a reinvestment plan.

Stock Split A stock split is when a company decides to split each of its shares by a certain ratio for example 1:5 or 1:10. The reason that companies will split stocks are usually for liquidity purposes. When a company has small number of outstanding shares it often leads to low liquidity and volatile prices due to large spreads between the bid and ask prices.

Therefore, by splitting stocks the company can improve the liquidity of its share price. The results of this action will increase liquidity but also lower the share price and volatility of the security. Reverse stock split or consolidation The process of a stock consolidation is just the reverse of a stock split.

This occurs when a company’s share price is too low or is too easily manipulated because there are too many shares available to trade. It is also important to note that most exchanges have rules that will strike out company’s trading on their exchange if the share price drops too low. Therefore, a stock consolidation may occur may have to happen out of necessity.

Mergers and Acquisitions Mergers and acquisitions are probably the most complex corporate action to understand. They generally involve one company buying or taking over another company. This process can take some time and is not as generic as the other actions.

There are multiple ways in which the buying company can purchase the other company. It may involve payment of cash, debt, shares, option, or a combination of these and other financing options. Most often the company buying, will have to pay a premium to cover the goodwill from the company being acquired.

The initial bid therefore provides a valuation for the company being acquired. To further complicate matters, a bid especially an initial bid is not always the final offer which makes finding a fair value for the share price difficult and provides great opportunities for trading as the market tries to find the fair value. Rights Issuing or share placements Companies for a variety of reasons need to raise money.

They can do this by selling new shares to existing shareholders or even private institutions. This enables the company to increase its equity. At the same time this dilutes the shares outstanding which will most likely reduce the price of the company’s shares.

In addition, these placements or new issues are often prices that are already discounted to the price at the time of the placement. A company may raise capital for a variety of reasons which include, increasing cash at hand, dealing with liquidity problems, purchasing of new equipment, purchasing of another company. Share Buyback A share buyback is when a company decides to purchase its own shares from the float to reduce the number available for trade.

Companies may do this to either regain control of some of the shares or also to increase the value of their shares for its holders. Whilst it is a different mechanism it has a similar effect to a dividend. This is because as the company buys back the shares the supply reduces, and the purchasing of the shares increases the market price.

Corporate actions are an important part of the capital markets and as catalysts for price changes for shares. Therefore, traders should be aware of the different types of corporate actions and the effect they can have on the price of a company’s share price.

How to use Arbitrage trading to increase profits Professionals in finance like to use hard to read and complicated language to make what they do much harder and more complicated than it sounds. However, when it comes to arbitrage, it is actually a relatively simple concept that can be used in trading, to develop an accurate system that can be used in various markets. The Law of One Price In order to understand Arbitrage trading, a trader needs to understand the law of one price.

It states that the same goods sold in different markets in conditions, free of competition and expressed in the same currency, must be sold at the same price. Although this is an economic theory, the principles follow into financial markets. This means that in an efficient market, prices for the same asset cannot be different.

In practice, this is not always the case or rather it is not always the case straight away and his is where arbitrage opportunities exist as the market tries to move the prices into one. What is an Arbitrage? An arbitrage is when the law of one price has not yet been realized.

Essentially, the market is in the process of converging the prices. The best example is that of dual listed companies. These are companies who have shares listed on multiple exchanges.

Initially the price may be different due to exchange rates, different number of shares on issue. However, the relative value for each share must be the same. Usually, they are larger companies or multinational companies.

For instance, BHP is listed on both the ASX and the London Stock Exchange. The strategy can involve selling the shares on the exchange where it is more expensive and buying them back on the cheaper exchange or the alternative and profiting the difference. Other arbitrage opportunities can exist in companies that are primarily traded on an exchange but also have an over the counter, (OTC) listing.

These OTC listings are often much more illiquid allowing for more arbitrage opportunities Additionally, the primary market will usually be the lead pricing target, whilst the OTC or secondary market will attempt to move towards that price. Merged Arbitrage This strategy involved targeting companies that are in the process of being taken over or bought out. The acquirer will need to put an offer per share in order for a take-over to occur.

This gives the market a value for the shares. Generally speaking, the price will have to move towards the offer, especially if it is accepted. In a recent example, company Tassal formally TGR.AX, announced it was being bought out by a private equity firm.

There were previous offers made at $4.67, $4.80 and $4.85 per share before the final offer came at $5.25 a share. It can be seen from the price chart that the share price did not reach $5.25 immediately. The interesting thing to note here is that even though the final and accepted offer came in at $5.25 on the day of the announcement the price only reached $5.12 still $0.13 short of the offer.

This represented an arbitrage opportunity of $0.13 for savvy traders and investors. Although the actual % gain was not very high, the relative certainty of the price target made this trade a potential big winner. Opportunities like this are not always perfect and deals may not always follow through, but a skilled trader can develop a very strong system around this premise.

Overall, arbitrage trading may seem difficult but in reality, the theory is relatively straight forward. Finding mispricing within the market and capitalising on them can take some practice but they can also offer longer and shorter terms edges when the market is not providing other sufficient trading opportunities.

As a new trader, riding the emotional ups and downs can be a very difficult task. It is human nature to feel the pain of a losing trade. The losing often outweighs the positive feeling of any winning trade.

Dealing with the emotion of trading can be an incredibly difficult task. It can cause even the best system to fail. A trading journal especially early on in a trading journey can provide important feedback and information about the effectiveness of an edge.

The reality is that early on profit and loss can be terrible measure of an individual’s trading ability which is why a journal is so essential. There are many different formats and styles of journals that can be used. Some like to base their journal around a calendar.

Others like to pick out their best and worst trade each day and analyse them intensely. In the end, it doesn’t matter what style is chosen if a consistent structure is followed. Both quantitative and qualitative measures that ca be used to measure performance.

What to include in your journal? Below is a breakdown of elements that can be analysed in the trading journal. Initial trade idea – This is the overall basis of the trade, it can be related to a technical pattern, fundamental factor such as a news or a mix of both.

Some traders call this the trade hypothesis or thesis. In its most simple form, it is the very reason a trader enters into a trade. When journaling, it is important to evaluate the strength of the idea, whether it was correct and why or why not the trade was validated or invalidated.

It is also worth noting if the idea is a common one, such as news catalysts, repeating technical patterns. This can also be elevated by understanding how different trade ideas work together to create stronger overall trade ideas. Entry – Breaking down the key elements of the trade are important aspects to a journal.

More specifically outlining whether an entry was ideal, correct and managed well. Was the entry chased or was patience shown to achieve a more ideal entry. The entry is also a part of a trade with heightened emotion.

Therefore, journaling how emotions were managed and ways to improve emotional management is an important aspect of reviewing the entry. Exit – It goes without saying that the exit is the reciprocal of the entry and just as important. Analysing whether the exit was correct at both the time and in hindsight is an important step.

By continuously analysing both entries and exits, a trader will likely see an improvement in this aspect of their trading. In addition, they will potentially remove external factors such as emotion and noise from other influences such as twitter. Sizing – Sizing is an extremely tricky area of trading to master and there are many different theories on what sizing tactic is the best for each trade.

Some traders like to increase size depending on how strong a trade set up is whilst other like to have more consistent sizing strategies regardless of the strength of a trade. When reviewing it is important to make note of whether the sizing strategy worked. Trading with too much size can affect the active management of a trade as a trader can lose sight of the trade at hand and become too concerned about the potential outsizes loss.

Trade management – Whilst all the above can all constitute some level of trade management reviewing, analysing the whole management of the trade is vital. This can include the effectiveness in taking profits or losses and how the trader has dealt with their emotions. Management of fear and greed are the two most common emotions that a trader feels.

Grading – Having some quantitative measure even though it is subjective can help classify many trades over a long period of time. Using either letters or a number ranking can be just one method. This allows for a trader to identify their best performing trades and where the strongest edge is.

This list should not be seen as exhaustive, and traders can tinker and adjust to suit their own trading strategy. Reviewing the journal. It is important to review the journal at the end of a set time whether it be weekly or monthly to see if common mistakes are occurring or a theme is emerging.

If the same mistake keeps occurring, it may act as point of emphasis for future journaling or improvement. Ultimately, using a journal can accelerate the learning curve drastically especially for new traders.

Not even one week after crypto exchange FTX officially filed for bankruptcy another Cryptocurrency entity has felt the wrath and submitted its own Chapter 11. The spread and contagion effect from FTX was always a concern and now cryptocurrency lender BlockFi has fallen. BlockFi had been struggling even prior to the FTX collapse.

In fact, the company was bailed out with credit support form FTX of which the company could access up to USD 400 million. BlockFi is not a traditional exchange, rather a lender in which it used cryptocurrency assets as collateral for the loans. As the value of the crypto assets has declined the value of the company’s collateral became lower and lower and the company was unable to cover its liabilities.

Once the FTX crisis broke out, the support the credit offered by FTX was of course no longer available leading to a liquidity crisis. The bankruptcy filing outlined that the company currently has 256.9 million dollars of cash on hand which it says will provide enough liquidity in the short term to keep it operational until a restructuring can be done. The company owes approximately 100,000 creditors and the top creditor is the SEC is number which is owed 100 million dollars to settle charges it has in relation to one of its products that it offered.

The company has halted withdrawals from its platform and acknowledged the significant exposure it has to FTX. Will BlockFi end up like FTX? The manager of the financial group that advising BlockFi has made it clear that the situations Is not the same as FTX.

This is because they believe that the management teams of BlockFi are experienced, competent, and responsible as opposed to the leadership at FTX. There have been to date, “No failure of corporate controls and the company’s financial statements have shown to be trustworthy”. The difference in management and leadership does represent a potential safe exit for BlockFi and perhaps a lower level of negative impact on the crypto sector.

Ultimately, the situation surrounding BlockFi just highlights how precarious the whole FTX crisis is and the potential for other firms to be caught up in the fiasco. With such an interconnected market other exchanges and entities need to stay vigilant and aware of their exposure to the falling value of their assets.