6J·

Risky mind game - playing off dividends against loans

$TRMD A (+1,1 %) . Admittedly, I am currently somewhat fascinated by this share and the underlying dividend. So far I am invested with a tiny position. However, I have come up with the following risky idea.

Starting next month, I have a free land register on which I could safely borrow e.g. 100tsd at e.g. 3.8% interest and e.g. 1.7% repayment = annuity 5.5%. Assuming a term of 5 years.

If you invest 100tsd in Torm and pay out approx. 5.57 euros p.a. per share at a purchase price of max. 20 euros per share, you have a delta between dividend and annuity of approx. 20%.

Of course, taxes are still deducted from the dividends, but even if the delta shrinks to 'only' 15%, that would be pretty hefty for not investing your own money.

Yes, I know: company can go bankrupt. Dividends can fall. Share price can be significantly lower in 5 years. On the other hand, I can also pay the interest and repay the principal from the rental income from the property I have borrowed against if necessary. So even in the event of a total loss, it wouldn't ruin me, but of course it would hurt.

Do you think it would be crazy to do something like that?

15 Commentaires

TomTurboInvest@TomTurboInvest

But you do realize that the dividend paid out - however high - is deducted from the share price? In this respect, it's a zero number, just like when you withdraw capital from your investment that is immediately taxable.
If you have a portfolio of several million, you are welcome to put 100k in a stock like Torm, otherwise just casino.
Why Torm? There are countless better stocks or assets where you can leverage with outside capital.
Just don't fall into the divi trap👆

•

NichtRelevant@NichtRelevant

@TomTurboInvest Thank you for your frank feedback - that's why I asked the question.
It is true that the whole thing has to be taxed and the dividend is deducted from the share price on the ex-date. Nevertheless, the company does not stand still and (hopefully) continues to earn money, so that the share price still rises or at least stagnates over the 5-year term.
Ideally, distributions would be needed to service the loan, as otherwise the monthly installments would have to be made from other sources or from the sale of shares until maturity.
I would see Torm here as just one possibility or example. In reality, you could also divide it up into several assets to at least mitigate the cluster risk somewhat.

••

TomTurboInvest@TomTurboInvest

@NichtRelevant In principle, there is nothing wrong with a loan, but you have to be aware that this is leveraged market timing.
It is not the dividend that is decisive for the interest on the loan, but the price performance.

Torm was at €7 3 years ago, imagine you buy at €20 and at the end of the loan term the share price is at €7.

Personally, I would only consider this if I fully expect a bull market, everything else will be a flop. What good is it if the interest is covered by a dividend but the capital is at -70%?

What I wouldn't do under any circumstances is to encumber an unencumbered property for a loan for shares. And then invest the loan in a volatile sector such as shipping. I would look for something more conservative.

PS: in your calculation with 1.7% repayment and a term of 5 years, there must still be a mistake, that doesn't work out at 1.7%...

•

NichtRelevant@NichtRelevant

@TomTurboInvest Cool, thanks. I'll think about it. Maybe I'd rather borrow against the land register, extend the roof and rent out the apartment there.
Only then will I continue to invest in real estate, although I'm already totally overweight in that anyway.

•

Dividendenopi👴@Dividendenopi

There are a few stocks with "top dividends" at the moment, such as Torm and $HAUTO. I hold both of these in the short term and keep a constant eye on them. As soon as they turn negative, they're out. Suitable for a dividend gamble, I don't think it's a good idea to operate with a loan here and would be too hot for me personally. But you seem to have weighed up the risk, I'll keep my fingers crossed if you do it and keep us up to date

•

NichtRelevant@NichtRelevant

@Dividendenopi Thanks for the feedback. At the moment, it's just a thought process that's bothering me. Realistically, you might not put all the money from the loan into a single asset and for security reasons you would probably split it into 2 or 4 assets, which you have to look at in detail beforehand.

•

Harald@Madhatter5566

The total return of the company is what? Dividends don't do you any good if they are taken out of the balance sheet. For the long-term nature of the company or
dividend I unfortunately see rather.... black

•

NichtRelevant@NichtRelevant

@Madhatter5566 Well, they have a P/E ratio of 2.48. They are already earning money and the company has been around for over 100 years. Of course, that's no guarantee of anything. And it's a cyclical value, that's clear.
Nevertheless, thanks for the open feedback. At the moment it's just a mind game.

•

Bullnbear@Bullnbear

Take a look at the Nasdaq 100 Covered Call if you want safe & high dividends. In my opinion, the risk is lower here

•

NichtRelevant@NichtRelevant

@Bullnbear Thanks for the tip.

••

Murcielago@impuff

I don't think it's crazy. Maybe put a bit of equity in it to ease your conscience.
And a second stick as security. Petrobras or something

•

T..@AIex

22H

Dangerous error of reasoning in my opinion! TORM has relatively high fluctuations. The dividend is always deducted from the share price, so in fact you have no profit at first, plus the taxes, yes and also the withholding tax!
You have to earn a higher percentage than you have to pay back, so the only options are bonds and constant P2P.
But P2P is not without a certain amount of risk. There are also P2P providers who offer bonds, which are paid out every 3 or 6 months. There are P2P providers that pay out interest daily, with a percentage that is higher than your annuity. But here, too, it is important to spread the risk. Even with diversification, just one default can wipe out your profit!
Spread rather 20-30 bonds, 3-5 P2Ps, not in shares, unless there are 4 specific ones and they are not about the dividend as a small addition, never alone!
Follow me for more cosmetic tips!

•

NichtRelevant@NichtRelevant

Thanks for the comment. I also think that - if I do it - I won't put all my eggs in one basket. Spread over 2-4 companies so that you don't have too much cluster risk.
Petrobas was never on my radar. It would almost be a thematic team. One produces the oil, the other transports it. 😅
Do you happen to know how dividends from Brazil are taxed?

••

Murcielago@impuff

@NichtRelevant It depends on the type of distribution. The pure dividend is exempt from withholding tax. Petrobras not only produces, but also manages assets. In return, a return on capital is distributed. This is subject to 15% withholding tax. I do not yet know the exact breakdown. It is approximately 95% dividend and 5% interest. Plus minus

•

NichtRelevant@NichtRelevant

@impuff Great, thank you. That does sound interesting. Thanks for sharing the information.

•