Wednesday, 21 March 2007

Free Money at Renasant Financial?

A friend noted that today March 20th the shares of Renasant Financial Partners Ltd (TSX: REN) were trading around the $2 mark and wondered if it would be possible to get the $3 per share special distribution the company will be making on March 30th per this press release. Not a bad deal if it were so. But the press release states that the $3 would go to shareholders of record on March 22nd. Therein lies the rub and the explanation why it isn't possible to buy a share for $2 to get the $3 cash. It is simply that the shares are trading "ex-dividend" as of March 20th, that is, any shares bought on March 20th will NOT receive the distribution, which is a return of capital and not a dividend. The reason the payment is not included is that shares in Canada, as in the US, have three business days to settle and to appear on the company's records. Two days - March 20 to March 22 - doesn't make it. The Investopedia has a good explanation of how this works.

As a result, from March 19th to the 20th, the price of REN dropped by almost $3 ($2.92 to be exact). The chart from Yahoo shows this in operation, though it is a bit puzzling why the trades early in the day were around the $4 mark. Maybe some investors got confused about the ex-dividend status, or did they just think the remaining business minus the $3 payment was still worth only a buck less?

It's another illustration of the old adage "if it seems too good to be true, it probably is."

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