Understanding Dividend Capture Strategies: Trading Around Dividend Dates



Compare income investing tools: http://www.informedtrades.com/f189/ Trade in income stocks using Scottrade: http://bit.ly/scottrade-IT1A Key Points: 1. To understand dividend capture strategies, the basics of how dividends are issued must first be understood. There are X components to how dividends are issued: a. Announcement Date: When the dividend is announced, which includes the amount of the dividend and the anticipated payout date. b. Ex-Dividend Date: This is the date on which the stock trades without its dividend. To earn the dividend, the trader/investor must be the registered owner on the day before the ex-dividend date. c. Record Date: When the list of shareholders who will recieve the dividend is determined. This is typically two dates after the ex-dividend date, and records the list of owners on the day before the ex-dividend date. d. Payout Date: The date that the dividend is paid to investors. 2. Special Dividends are dividends with a yield of 25% or more (meaning the dividend per share is at least 25% of the share price). Special dividends have a different protocol for determining who is eligible for the dividend; they typically involve a different sequence of events, like so: a. Dividend is announced b. Dividend record date occurs c. Dividend is paid out d. Stock begins to trade ex-dividend If a shareholder sells a stock after the record date but before payout date, he/she may be required to return the dividend. As such, for traders/investors who wish to capture special dividends, they should hold it all the way up until the ex-dividend date. 3. Dividend capture strategies involve buying a stock just to capture its dividend, then selling it and moving on to the next dividend capture opportunity. 4. Typically, dividend capture strategies are difficult because of commissions, and because of the higher tax rate in many jurisdictions associated with holding dividend stocks for a short amount of time. 5. For a dividend capture strategy to work, the difference between the price of the stock when the trader buys it on the day before the ex-dividend date and price the trader sells at (which will be the ex-dividend price of the stock) should be less than the net dividend the trader earns. Typically stocks fall by the amount of the dividend per share on the ex-dividend date.

Comments

  1. Should be retitled "How to make your broker a lot of money". Buy quality stocks that  have a long record of paying dividends and rising earnings. I use leveraged ETFs to get in and out of the market, whenever I tried capturing just the dividends I lost money overall. If the underlying stock is going down it will continue to go down. If the price is trending up it will continue to trend upwards.
  2. What about buying the stock ex-dividend when it's dropped and then holding it till it goes back up again and selling it?
  3. Dividend capture does work. However, pick good stock candidates. Check the past 50 day and 200 day moving average. Has stock continued a downward slope after past recent dividends? If so, good chance it's going to continue to go down. If you make the dividend play, you get the dividend and lose on value of your stock, which can continue to go down for a long time. Meaning, either you sell for a loss (not good) or hold hoping for a recovery. So, you want to pick a company that has a good probability of regaining value loss on ex-dividend day, so that not only do you capture the dividend, you can sell your stock in the shortest period of time at break-even or a profit. Most of time good stocks will reward you with a profit on value of stock, continuing to rise after dividend drop amount on ex-dividend day, plus on pay date , you get the dividend. Sometimes a stock will not have dropped at opening bell on ex-dividend date. I have seen this anomaly and immediately sold without any stock value loss, sometimes even making a profit. But, you want to slam the sell button immediately. Within 2 -3 seconds of opening bell. I have successfully done this. It's arbitrage. I don't endorse arbitrage, but when the opportunity presents itself, get out with losing stock value. The bigger block stock buys that you make, the less commission impact. Use online trading brokers, not full commissioned. Best strategy, buy good companies with positive EPS, that have not been of a downward trajectory. Do your homework, study past moving day averages and what the stock has done on previous ex-dividend dates. If market has been on a bad bear streak, probability is higher that stock you own has a higher risk of been dragged down by broader market and losing stock value. So, the key here is to not focus on the dividend itself. You'll get it on pay date, if you owned before ex-dividend date. Instead, focus on not losing your stock value and choosing a company you feel will regain the dividend amount loss on ex-dividend day in the shortest amount of time. This will allow you to free up the value of your stock purchase for other dividends. Having said that, if you notice that a stock regains rapidly and keeps going higher, going past your initial buy-in, it's not a bad idea to keep holding the stock. You're making a profit from the stock and dividend both.
  4. so the payment date is the day when you get the money?
  5. One way to minimize taxes on your trading account is to hold your stock trading activities in a corporate name. Profits on corporate income if structured correctly can be as low as 5%. Minimize trade commissions by finding a low cost/no cost trading platform.Your Dividend Capture example was confusing. Buy stock before "Ex-date" Sell after "Date of record" for same amount or more. Also make sure your commissions aren't eating your profits. Works great on plenty Dividend Stocks... not all of them though.
  6. Hi I have a quick question.  In the Long Strategy can't you offset your dollar dividend with the dollar you lost with the sale price for tax purposes?


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