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Trade This LP and Profit From Others’ Greed

Use the 'mid-quarter momentum' strategy on AllianceBernstein


The news cycle sure is dominated by negativity at the moment: More and more firms are forecasting weak Q1 earnings, you’ve got North Korea rattling sabers, and the U.S. absorbed some dour data on the jobs front last week.

But I’m here to tell you that there are plenty of ways to make money if you know where to look.

After all, this slow-growth, “risk-off” environment we’re in now is nothing but good news for income stocks. Think of it this way: If you’re one of many hedge fund managers who missed out on the previous rally, what easier way is there to make a much-needed boost to your bottom line than to collect some hefty dividend payments?

That’s why one of the most common aspects of high-yield stocks like AllianceBernstein Holding LP (NYSE:AB) is a rally just prior to the stated cutoff for earning the next quarterly dividend. Sometimes the gains you’ll see are considerably more than what is justified by the payout itself — as shown by this chart of AB, in which the dividends are marked by the blue D’s:


Given this anomaly among high-yield securities of becoming oversold after paying the quarterly dividend, then being overbought just before the next one, the best short-term trade here is to buy the stock halfway through the payment period at a deep discount — then sell that same security the day before the ex-dividend date.

Now, this approach obviously runs counter to the usual rationale of buy-and-hold investing … but if you’re looking for a quick trade that allows you to take advantage of others’ greed, look no further. If done properly, this “mid-quarter momentum” strategy has consistently shown that you can capture a 10% up move by buying four to six weeks in front of the ex-div date, when the underlying stock is set to pay out a quarterly payment of more like 3% to 4%.

This is just what I suggest you do with AllianceBernstein today. The company beat the Q4 estimates handily and hiked its quarterly dividend by 30% — and based on the strength of the capital inflows asset managers are enjoying, I expect a repeat performance from its Q1 financials. AB is also expected to announce its May dividend around the same time as the upcoming earnings report, and both are strong catalysts for the shares to rally.

I recommend that you take a position here under $22 and look for a move to $24 to occur before the next ex-div date, which is expected to be sometime around May 20. With that, you’ll be making a quick 9% on your money while others are taking home less than 2% in dividends.

Bryan Perry is editor of Cash Machine, a newsletter focused on dividends and income investing. His newest service, Extreme Income, also focuses on dividend investing with “income boosters” like momentum plays, option strategies, and more. As of this writing, he did not own a position in any of the aforementioned securities.

Article printed from InvestorPlace Media,

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