Next Tuesday, 5th April, Sigma Pharmaceuticals (SIP) will go ex-dividend. Investors who own this stock, or buy it before close of business on Monday the 4th, will receive a special dividend of 15 cents per share, fully franked. Given that the stock is trading at 49 cents per share, this may be a lower risk entry for investors.
The franking of the dividend makes this particularly interesting. While circumstances vary from investor to investor, the franking can add an extra 6 cents per share in value to this dividend. (Any investor unsure about the value of a fully franked dividend in their circumstances should speak with their financial advisor).
In many cases, investors paying tax at a top rate of 30% or less will receive the full additional 6 cents per share. This means receiving 21 cents per share, on a share price currently trading 49 cents.
The pharmaceutical sector is highly competitive, and faces potential regulatory changes that could harm the company’s earnings prospects. Additionally, economic theory suggests the share price should fall the value of the dividend on the ex-dividend date, although there are many examples where share prices have fallen further or less than a dividend’s value.
Nevertheless, for investors considering SIP, the next two trading days may represent a lower risk entry point, given the 21 cents per share “buffer” the fully franked special dividend may provide.