TLDR:
- Activist Investors
- Dividend Increases
If you are just getting stated with LevelFields and with investing, the amount of data on the platform can be overwhelming. Focusing in 1-2 scenarios only will make it seem much more manageable. The scenarios below have high win rates, high returns, and are quite easy to manage.
Activist investors are investors that buy large percentages of a public company with the goal of influencing its operations. Many activist investors specialize in turning around companies with weak or average performance by forcing shareholder votes that change the company's leadership and/or cause the company to sell assets or divest from unprofitable business lines to increase profits.
Investing alongside these institutional investors can prove to be lucrative, as you're leveraging their experience managing companies to enhance earnings.
The activist investor scenario can be used for both short-term (1 day) and mid-term (3-18 month) trades. Often, the shares of the company rise on the news that an experienced investor is going to push for greater profitability. This results in a positive 1 day move on the share price.
Large gains are to be had when the activists actually start rolling up their sleeves and getting to work. Typically, activists will push to change the company and drive up the share price. This means if you invest with them, they will work for you and drive up the share price (read more). A simple buy and hold approach is best here.
Dividend Increases
Companies that raise their dividends by a significant amount are signifying that they are in good financial health and the future looks like things will stay this way. Companies that raise their dividends by double digit amounts regularly outperform peers and the S&P 500.
So what is a significant dividend increase?
The answer really depends on how big the dividend is in the first place. If the dividend amount is 1 cent and the company raises it to 2 cents, that is a 100% increase but the total dividends allocated is still small so the increase is not going to get any investors excited about getting more cash. For this, it's best to look at the dividend yield - the dividend divided by the share price x 100.
To get going, start with companies that have a dividend yield of at least 1 percent. This will eliminate much of the noise in the data sets.
A dividend increase of 10% is a lot for a company that has a dividend yield above 2% but not much for a company with a dividend yield of .1%. So the increase is relative to the starting point based on how much more money the company is giving out per share. To simplify it in real terms, if company A has a dividend of 1 cent and doubles its dividend, that makes 2 cents. If company B has a dividend of $1 and increase it by 10%, that is an extra 10 cents per share.
A good rule is to not get excited about the event unless the numbers are at least 10 on 1 - a 10% increase on a 1% yield. Above that is great and will often be a good long-term and short-term investment.
Dividend investors by nature are slow moving and patient. They wait all year for these dividends. So few rush in to buy stocks following the announced dividend increase. As a result, the share price tends to react over several days and over longer periods of time if the increases are consistent.
Pro tip: Filter alters for companies that have positive earnings and can actually afford their dividends. Here's how to filter alerts: https://support.levelfields.ai/a/solutions/articles/69000799445.
Pro tip: As with all events, if a company reports horrible earnings and/or sales growth but increases the dividend, the market's attention in the short term will focus on the bad earnings report. So it's important to see if the company reported earnings that day and how they went. All companies report earnings on their investor relations portal of their own website.
You can see when a company is reporting earnings on our alerts, on the company profile page, and in our earnings reports calendar: https://app.levelfields.ai/calendars.