Welcome to my tutorial: I’ll show you strategy on how to profit from dividends on eToro daily, using dividend calendar, leverage, MS Excel and a bit of work.
What is dividend?
Dividend is a distribution of a portion of a company’s earnings as a way of gratitude for buying and holding stocks. It is essentialy a payout for stock owner, proportional to number of shares owned, with intention to entice investors to buy more shares. And it’s also additional way to award CEOs who are usually owning a large number of shares with more corporate money.
How dividends works on eToro?
When you trade stocks on eToro, you don’t actually trade stocks, but CFDs – Contracts For Difference. That allows you to earn on upward movement – when you “buy” stock and downward movement – when you “sell it” and trade with leverage (and also buy partial amounts, like half stock). Usually CFDs don’t award dividends, but some brokers do this and that’s the case with eToro. You are awarded dividend multiplied by leverage when you buy, according to dividend calendar and pay fees equal to dividend multiplied by leverage when you sell. Dividends are paid out overnight, after closing bell.
Your dividends will be automatically calculated as “Refunds” and added to profits. In case you had fees from holding stock overnight with leverage (sometimes called “swap”, incorrectly though, because this term applies only to currency pairs), refunds will be reduced by current fees accrued.
How does this strategy work?
It’s simple as that:
- Research what stocks will be paying dividends in given day
- Open buy position 1 day before dividends are paid out for any number of stocks with dividend opportunity. Use leverage if you want to increase profits and risk.
- Profit from dividend overnight
- Close it at the opening
- Repeat next day with another stock or set of stocks
When are dividends paid out?
Unfortunately, there is no way to check which stock pays dividend and when directly on eToro, so you need to do your own research. There are a couple of websites that I use to check it. For Nasdaq I’m using http://www.nasdaq.com/dividend-stocks/dividend-calendar.aspx.
As you can see, at the day of writing this article, there are a couple of stocks listed on NASDAQ and on eToro. These are ASX, BA, RDS.B and more companies that will be issuing dividends today!
For all other markets I’m using https://www.investing.com/dividends-calendar/
Now comes the part requiring a bit of work and research. You need to compare all available stocks with dividend opportunity with their availability on eToro. You will find all companies available to trade at eToro fees page. Write all companies that will be issuing dividend in Excel file, noting yield, ticker and later – actual profit. Do this for entire week or two and you are ready to open positions and get those sweet yields.
How much can I earn on this?
Let’s make some calculations. Note, that this position was opened with just x1 leverage. But if you would’ve opened the same position with x10, you would earn $75 overnight, which you can constantly repeat several times per month. There are 200 NASDAQ and 725 NYSE stocks on eToro (and this number is growing, because eToro is slowly, but constantly listing new companies) and assuming that typically US publicly traded company pays 2 dividends per year (some companies pay 1 per quarter, while some pay none), on average there 925*2=1850 dividends opportunity yearly or roughly 5 per day.
Assume that you are buying just 600$ in stocks with safer, x5 leverage, and average dividend is the same as in $GDX example, this will yield you 19*32,5 USD = 617,5 USD in profits – 103% monthly income from investment! But if you go a little bit riskier, with x10 leverage, it will yield you twice as much: 1235 USD per month. And as you will see, sometimes yield per dividend can be very large, even more than 10% or 20% as in example below.
On investing.com you can sort by yield to track most lucrative payouts.
Don’t believe it actually works? Try it yourself on demo account or on real trading with smallest possible amount to invest on 1 position in stocks ($50) – you will see that it actually works.
So are there any drawbacks to this strategy?
Of course – no such thing as investment without risk. Dividends are essentially “free money”, but you need to carefully research and execute it for profit. Here’s what can backfire: on bad market days stock price can fall a lot and dividend profits won’t offset this. If you’ve invested with x10 and you have bad luck by picking stock that fell by 5% on opening, your position will move -50%. But at the same time, in addition to dividend alone, you can earn as much when stock will go up, which will be nice addition do dividend profits.
Additional things to consider
- Dividend trading works mainly for American stocks. European markets are not generous in dividends (there is no such tradition in Frankfurt or Zurich and typically dividends are meager). Executing this strategy will work only with US stocks.
- Refrain from buying stocks when market is in downtrend. You can use short term technicals to predict if price will go up or down next day to get better view.
- Remember that when you sell position you will pay fees equal to dividend multiplied by leverage. So when you consider to open new sell position and you’re not using this strategy, you can check when dividends will be paid out to factor this loss in your potential earnings profits.