You are an analyst at Oil Patch Semiconductors Inc. (OPS), a small high-tech firm specializing in the design of proprietary chips used by oil companies to help find new sources of oil and natural gas. Your company has had a very successful quarter and currently has $1 million in excess cash to be invested. The president has come to you with an investment strategy that he thinks is conservative but guaranteed successful. He want to buy $1 million worth of common shares of one of the big five Canadian banks (listed in Problem and Case 11.16, among others) to ensure getting the dividend and then, once the ex-dividend date passes, sell all those shares and buy shares in another bank with the next closest ex-dividend date. In this manner he hopes to get dividends from all five Canadian banks each quarter.
Required:
(a) Is the president's strategy even feasible or do all the banks have the same ex-dividend date each quarter? Refer to your answer to 11.16.
(b) Will transaction costs outweigh any dividends received?
(c) Comment on the theoretical legitimacy of the president's investment strategy.
(d) Is there ever a time when the president's strategy would work?