Is the falling Glencore share price a buying opportunity?
The Glencore (LSE:GLEN) share price is down 3.5% this morning. That’s a significant decline, but I don’t think it’s a buying opportunity.
In fact, I think Glencore’s shares are – surprisingly – more expensive than they were at the start of the day. Confused? Read on.
Glencore is a dividend stock. Each year the business distributes a significant amount of the cash it generates to shareholders in the form of dividends.
Investors can buy or sell the shares whenever the market is open, but in order to qualify for the dividend, they have to own them when the market opens on a certain day. This is the ex-dividend date.
Someone who buys a stock on its ex-dividend date doesn’t receive the next dividend. So if Warren Buffett sells Charlie Munger 8,000 Glencore shares on the company’s ex-dividend date, Warren gets the dividend, not Charlie.
Glencore’s ex-dividend date is today – 4 May. The business will distribute a 36p dividend to everyone who owned its shares when the market opened this morning.
That means someone who bought the company’s shares yesterday will get a 36p per share payment at the start of June, but someone who buys this morning won’t. Aside from that, there’s no difference between them.
With two otherwise identical stocks, it makes sense for the one that comes with a 36p payment to be worth more than the one that doesn’t. So it’s reasonable for the Glencore share price to be lower today than yesterday.
A buying opportunity?
But looking to the future, sometimes a falling share price can be an opportunity to buy additional shares. Investing £1,000 in Glencore shares today would get me 224 shares, compared to 216 shares yesterday.
This isn’t such a great example of profiting from a price fall, though. You see, the fall in the Glencore share price only amounts to a 16p decline, which is less than the dividend shareholders are going to receive in June.
In other words, I could have bought Glencore shares yesterday and received a 36p per share dividend. Or I could buy them today for 16p less, but not get the 36p payout in June.
To my mind, it’s pretty clear the better move would have been to buy them yesterday. I’d do better by 20p per share – or around 4% of the current share price.
It’s worth noting that buying shares before the ex-dividend date with a view to selling them and collecting the dividend isn’t always a good idea, though. Sometimes the share price falls by more than the dividend payment.
The Admiral share price (which also trades ex-dividend today) is down by 70p, but the dividend for shareholders is only 14p. In this case, the stock really is cheaper today than it was yesterday.
Ultimately, investing for income is much the same as investing for growth. The main thing is to look for stocks that are cheap compared to future cash flows.
Trying to figure out which day a share price will be down by looking at its ex-dividend date doesn’t feel like a good strategy. Sometimes it works and sometimes it doesn’t. But it can be useful information for a stock on an investor’s watchlist. And of course, we at The Motley Fool prefer to invest for the long term.
The post Is the falling Glencore share price a buying opportunity? appeared first on The Motley Fool UK.
Stephen Wright has no position in any of the shares mentioned. The Motley Fool UK has recommended Admiral Group Plc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2023