There are 2 ways to earn thru investments in the stock market. The first one is buying stocks that regularly pays out dividends. The second one is buying stocks at low prices and selling them high for a profit. It now depends on the stock investor which one he/she will prioritized.
Just recently, we experienced these two types of return on investments on a particular stock within just one month. We got cash dividends from JFC (Jollibee Food Corporation) and we also profited from selling the JFC stocks.
A dividend represents stockholder share in profit. Please note that not all stocks pay or gives dividends, as this is a management prerogative whether or not to give out dividends to shareholders and how much, or to roll the profit for further investment into the company.
If the focus is on getting dividends, one must check the historical records of the stocks one is interested in. If the company behind the stock gives dividends yearly, chances are they will continue to do so year after year. Usually, it is the bluechip companies who gives out dividends regularly, example of these are PSEI listed stocks like JFC, SM, SMC, MPI, ALI, etc.
If you are a holder of a stock one day before ex-date, you will get the dividends. This is what happened to us. We weren’t really minding the JFC dividends; last month we just needed to liquidate JFC to get additional funding to buy MRC and PHA. Then yesterday, December 17, we got an email notification from COL Financial that our dividends from JFC will be credited to our account at end of day.
Ex-date or ex-dividend date of a stock is defined by Investopedia as the day the stock begins trading without the subsequent dividend value.
The way we understood it is that in order to qualify for the dividend the investor must be holding the stock a day before the ex-date.
If A sells the stocks on ex-date to B, who will get the dividend? It is A.
If A sells the stocks a day or days before ex-date to B, who will get the dividend? It is B.
If A sells the stocks after ex-date to B, who will get the dividend? It is A.
Usually the dividend is credited to the account one month after ex-dividend-date. Stock dividends can be cash dividend or stocks dividend, or both.
STOCK CASH DIVIDENDS PAY-OUTS
Reading the email got us confused because we know we already sold the JFC stocks and closed the port last November. I checked the Ex-Date, it’s November 19. And since we keep a record of the buying and selling of all stocks, we checked it to see when we sold all JFC stocks. Turns out, we made the successful sell order for the stocks last November 20 , a day after the ex-date, nice!. We are in for the dividend :).
The dividend is really small, net amount is only P128.52. The cash dividend given by Jollibee Food Corporation was P0.68 per share, and we only had 210 shares hence the minimal proceeds. Yep, there is still withholding tax levied on the cash dividends.
210 shares x P0.68/share = P142.80
P142.80 less 10% tax on earnings = P128.52
SELLING STOCKS FOR PROFIT
Usually it is in the buying of stocks at low prices and selling the same for higher prices that one can make decent profits. For now we are focus on stock trading as opposed to holding long term and gunning for dividends.
Again, we find it very important to make a record of all stock transactions. This way, at any given time, we know the total amount we spent buying a stock and the real average buying price. Plus, we know how much we spent on every buy order for a particular stock.
We do this because if one relies only on the records seen in the stock trading platform like COL, the reflected Average Price will not be accurate if one buy stocks at different price points and then sells them at different quantities per sell order and at various prices.
More detailed explanation about this on a separate post Stock Transactions Record Keeping.
So back to JFC. Last November 20, we sold all 210 stocks of JFC that we had.
Take note that we bought JFC 3 times, meaning 3 buy orders at different dates and prices. The average price of the 3 buy orders is P170.97. We sold the stocks in one-go, meaning all 210 stocks were sold under 1 selling order.
The day after buying or selling a stock, COL Financial usually sends email about the transaction.
Upon receipt of the email with the transaction details, we can now see the NET EARNINGS from the sold stocks. The amount will be a bit lesser compared to directly multiplying the number of stocks and the selling price, this is due to the taxes and fees levied on the transaction.
Example, the computation without the broker’s commission, VAT, sales tax, and other charges yet:
210 shares x P192.70 selling price per share = P40,467.00
Now, if the fees are added to the computation, the net proceeds becomes P40,104.82.
Broker’s Commission: P101.17
Other Charges: P6.07
Sales Tax: P242.82
The total fees amounts to P350.04.
Gross Amount P40,467.00 less fees of P362.18 = P40,104.82 Net Amount
Net selling amount per share: P40,104.82 / 210 shares = P190.98 – this amount is important later on during the computation for the actual profit from the stock trading.
PROFIT FROM BUYING LOW AND SELLING HIGH STRATEGY
If one tracks all the buy and sell transactions, then the actual profit can be computed easily.
In the case of Jollibee these are the prices and quantities the stocks were bought for:
- 100 shares at P185.45 bought in February.
- 60 shares at P175.06 bought in February.
- 50 shares at P137.10 bought in May.
Average buying prices per share is P170.97.
Computation: P35,903.59 total investment / 210 shares = P170.97.
We started buying JFC last February then averaged down by buying more in May. We expected then that the price per share of this bluechip stock will rise in the coming months and it did!
Spot check JFC is P204.20 a few minutes ago, today is December 18. This price will still change since PSEI stock market is still open as I am writing this post. If we hold and only sell today then our stock trading profit will be higher. But it’s okay since we are on good footing with our replacement stocks.
The simple computation we uses to get the net profit is Net Selling Amount Per Share less Average Buying Price Per Share.
P190.98 – P170.97 = P20.01 per share net profit
210 shares x P20.01 = P4,202.10 total net profit for JFC
In our case aside from using the straight computation above, we also look at whether or not we made profits from every buy and sell transactions. This is how we track the movements:
*There is a few centavos difference versus straight computation due to the rounding-off of figures.
As seen on the transaction records – the profit from this bluechip stock trading is P4,201.81.
STOCKS RETURN ON INVESTMENT (ROI) TOTAL
This year 2020 the total profit we got from investing in JFC stocks is P128.52 as cash dividend + P4,201.81 as stock trading profit is equal to P4,330.33.
The total amount invested in said stock was P35,903.59. The ROI or Return of Investment is 12.06%. Investing in stocks can be a lot more profitable versus keeping the money in the bank, in general. There are of course exemptions.
Watch out for I will be sharing in the future about what we considered our worst stock investment. It is an expensive ‘tuition’; we were so new then to the stock market and we let emotions ride high in the buying lol. We are still burdened by that stock until today, we didn’t cut-loss when we should have haha.
But there had been small wins and big wins too in our stock investment journey. Today, we still considered ourselves newbies, we know that there are still a lot to learn and to experience.
Start diversifying your investment. Check out opportunities in stocks.