An Alternative To Money Market Funds
Money Market Funds and One Year CDs currently yield less than 1% per annum at many of America's largest banks and brokerage firms. The search for higher yield has recently led investors to purchase low quality debt offerings. In a story authored by Al Yoon and Katy Burne in the Wall Street Journal (April 3, 2014), it was reported that investors were snapping up risky debt offerings backed by car loans and other low quality assets as the low yields in safer investments provide such a low return.
Ames Capital Management Inc. has aided investors seeking higher yields with limited risk by deploying a strategy known as Dividend Captures. With this strategy, we purchase shares of well known companies in the Standard & Poor’s 500 Index shortly before the company’s exdividend date and then sell the shares shortly afterwards.
The vast majority of dividend paying companies in the S&P 500 pay dividends quarterly (i.e. every 3 months). Some companies begin paying their quarterly dividends each year in January, and then every three months thereafter. Other firms begin paying their quarterly dividends in February or March and then every three months thereafter.
As a result, different S&P 500 firms are paying dividends in each calendar month of the year. With the Dividend Capture strategy, our clients are able to collect dividend income and capital appreciation on a monthly basis. Often, these Dividend Capture transactions return 2.50% or more in a single month. Annualized this rate of return is over 30%, well above what Money Market Funds and CDs currently yield!
Once a transaction is completed, a client’s funds go back into a money market fund of the client’s choosing. At present, clients of Ames Capital Management Inc. provide our firm with Trading Authorization and each client can choose to open accounts with either Charles Schwab & Co., Inc. or E*TRADE Securities LLC.
Clients are free to withdraw all or part of their account funds at any time. There is no lockup period for clients of Ames Capital Management and there is no annual management fee to be paid. Ames Capital Management is only compensated based on the profitability of a client’s account. In other words, we do not earn anything unless a client makes money. All client accounts receive full SIPC Protection as each client is also a client of Charles Schwab & Co., Inc. or E*TRADE Securities LLC.
Our Dividend Capture strategy focuses on S&P 500 companies with dividend yields above 2%, strong cash flows and Price Earnings ratios often below 20. Among the industry sectors we focus on are Telecom, Technology, Major Oil, Retailers and Consumer Discretionary. Several of these companies such as Apple, 3M, Procter & Gamble, Coca Cola, AT&T, Verizon, Exxon, Chevron and Johnson & Johnson have recently announced dividend increases. A number of these firms have announced significant share buybacks as well.