Ex-Dividend Dates, News May Affect Stock Trading
QUESTION: I own some shares of Southern Co., a utility company in Georgia. On April 22, about 20.3 million shares of the company were traded, compared to just 660,000 the day before. This high level of trading seems to happen several times a year. Why?--M. J. Q.
ANSWER: There are two obvious explanations for large fluctuations in the trading volume of a particular stock. One is that the particular company made news or was in some way connected to an extraordinary event that caused a wave of buying or selling. The most common news events are announcements of a company’s earnings, especially if the results are unusually good or bad. Other causes include reports of new products, the winning of a large sales contract, the cancellation of a sales contract, the hiring of new key personnel, the death of a principal officer, and so on.
The other major and obvious cause of short-term trading fluctuations--and the probable cause of the Southern Co. spike you noted last week--concerns dividends and the date on which you must own a stock to qualify for the dividend payment. Southern Co.’s ex-dividend date for the June 6 payment was Tuesday, April 26, a fact that seems to explain the heavy volume on Friday, April 22. (A stock must be bought before the ex-dividend date to qualify for the dividend.)
Stockbrokers and investors often like to buy just before an ex-dividend date to capture an additional payment. For example, if you buy shares the day before an ex-dividend day and hold them for a year and one day, you should qualify for five dividend payments, not the four that holding shares for a year usually permits.
However, you should know that shares typically increase in price as the ex-dividend date approaches, in part because investors are shopping for extra payments. Sometimes the increase in the share price is greater than the extra dividend is worth, so be careful. A stockbroker we know says he likes to start his ex-dividend shopping three weeks before the actual ex-dividend date just to avoid the price increase.
Q: My newspaper carries listings for all the stock markets. But like all papers, the names of the companies are abbreviated. Is there a book or pamphlet that translates the abbreviations into the companies’ full names?--C. M.
A: The stock market tables used by most newspapers, including the Los Angeles Times, are produced by the Associated Press. Although the AP provides a translation list of its abbreviations without charge to its newspaper clients, these lists, which the AP says are costly and time-consuming to produce, are not available to individual members of the public.
However, the AP says many schools and libraries have copies of the list in their reference sections. If your library does not have one and wants to order it, the AP will provide it for $25. The address is 50 Rockefeller Plaza, New York, N.Y. 10021. The request should be marked to the attention of the Business News Department.
Another source of stock market information is your personal stockbroker. Many brokers will give clients a copy of the Standard & Poor’s listing of the official stock symbols--which, however, are not the same as the AP abbreviations. Generally there is no fee for this service. If you don’t have a personal broker, the listing should be available in your local library.
Q: My wife and I own a duplex. We reside in one unit and rent the other side out. Because we occupy the larger unit, the expenses for the entire structure are divided 60%-40%. This allocation has survived an audit from the Internal Revenue Service. Now we would like to borrow against the property to invest in other property. We realize that the new tax code allows borrowing only up to the amount of the original purchase price. We want to be able to deduct as much interest as possible on our taxes. How can we do this? Can we change the historic 60-40 split of expenses on the property in order to allocate more of the debt and interest to the rental side of the duplex?--A. A. A.
A: According to the certified public accountants we consulted, you are stuck with the 60-40 split of property expenses and should not attempt to change it. But this should not reduce your ability to deduct the interest expenses from a refinancing of your duplex.
Beginning with refinancings completed in 1988, you are allowed to deduct refinance interest payments that meet the “qualified residence interest” standard. According to Robert Sullivan, a partner with the Los Angeles accounting firm of Stonefield & Josephson, you may deduct interest payments for refinancing your personal residence up to the home’s original purchase price, minus any existing loans on the property, up to a maximum of $100,000. If you refinance your duplex for $100,000 or less, Sullivan says 60% of the interest payments on the refinanced loan would meet the “qualified residence interest” standard, and you could deduct that portion of the refinance payments on your personal income taxes.
This still leaves the remaining 40%. Since you plan to buy a piece of investment property with the proceeds of the refinancing, 40% of your refinance interest payment should be treated as a business expense of the new property.
Q: If a full-time student stays in your home for the entire year with no income and you pay a medical bill for her, can you take a deduction for it? She is not related to me and is over 21 years of age.--H. D. M.
A: You haven’t really given us enough information for a full analysis, but the answer is probably no. First of all, in order for you to deduct the medical bills of your student guest, she would have to qualify as your dependent according to the IRS’ definition of dependency. And even if this qualification is met, the more practical issue is whether this single medical bill would be sufficient to meet the new limits on medical deductions.
Under the new requirements, you may deduct the medical expenses you actually paid only to the extent that they exceed 7.5% of your adjusted gross income. Since most everyone has some form of medical insurance, this is a tough qualification to meet. For example, if you had an adjusted gross income of $50,000, the portion of your medical bills that you actually paid would have to exceed $3,750 in a single year before you could begin itemizing them as medical deductions.
Carla Lazzareschi cannot answer mail individually but will respond in this column to financial questions of general interest. Please do not telephone. Write to Money Talk, Business Section, Los Angeles Times, Times Mirror Square, Los Angeles, Calif. 90053.
