Thursday, November 1, 2012

Fooling Mr. Market

Yesterday, shares of TSR Corp fell almost 20% as Mr. Market probably believes the company's shares no longer trade with the massive 30% dividend yield the company plans to pay out. But this is no ordinary payout! As we saw three weeks ago, on large payouts the normal relationship between the record date and the ex-dividend date goes out the window! Mr. Market moved that stock in error, in my opinion. If I'm right, investors who sold shares of TSRI yesterday thinking they had the dividend in the bag will be very sorry!

If you want to know how this works, read the post from three weeks ago that discussed this very issue. They key in this case is that the ex-dividend date is going to come after the payout date, which isn't something you would normally expect. As such, for those looking to buy a net-net which is about to make a big payout, Mr. Market may have presented you with a golden opportunity!

Disclosure: No position

8 comments:

Anonymous said...

Are you sure about that:

"TSR, Inc., (TSRI) a provider of computer programming consulting services, announced today that its Board of Directors has declared a special one-time cash dividend of $1.50 per share with respect to its common stock, payable on November 30, 2012 to stockholders of record as of OCTOBER 30, 2012."

Anonymous said...

According to Wiki:

"For these larger 'special dividends', the ex-dividend date is one stock trading day after the dividend date (the date on which dividend payment is made, typically after the record date). The stock will trade on an ex-distribution basis (adjusted for the amount of the dividend paid) on the trading day after the dividend date.
To be entitled to a special dividend, you need to be a stockholder on the record date. To be a stockholder on the record date, your purchase would need to have been made a minimum of three business days prior to the record date (you also need to own it on the ex-dividend date)."

So you would need to own it BOTH on the record date AND the ex-div date. But no way to profit from this. Basically just the sellers were foolish.

Paul said...

Saj,

have you checked out PCC lately? It's down a lot. Changes at the top.

Wade Garett said...

Interesting post. The thing I wonder though is in all their press releases and filling they state October 30th as the date.

So would the Nasdaq rule for greater than 25% of the company value apply even if the company states otherwise in a filling?

jeff said...

FRS may be able to shed some light on this...

http://finance.yahoo.com/news/frischs-restaurants-inc-clarifies-payment-131900454.html

rahim shukla said...

Hey Saj,

I have been reading your blog for sometime. In one of the very first posts you say, that as a part of your Ivey curriculum you guys were taken to meet Warren Buffet and had a video conference with Walter Schloss. Is this a regular part of the Ivey curriculum or was this a one off? Which year did you graduate from Ivey?

Thanks,
Rahim

Anonymous said...

My experience from following these special situations regarding dates, is that there is significant difference in how it actually works from what the legal documents might say....

Saj Karsan said...

Hi Paul,

I continue to believe it's cheap. What doesn't make sense to me are the capital allocation decisions of those in charge. Looks like growth is being chosen over value.

Hi Rahim,

It's not regular; I took part in 2008

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