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Did you know that you only have to
hold a stock for one day to collect a dividend? That fact has inspired
many investors to pursue “dividend capture” strategies that involve
holding a stock just long enough to collect the dividend, selling at or
above their purchase price, and then moving on.
Of course, it’s not that easy. For
starters, theoretically, the share price drops by the dividend amount on
the ex-dividend date. But, in fact, many different factors influence a
stock’s price movements on any given day, and prices typically don’t
drop by the exact dividend amount on the ex-date.
Dividend Capture Definitions
any further, here are some definitions that you need to know.
Declaration date: the day that a firm announces its next dividend.
Such announcements are almost always made via a press release.
Owner of Record date: the date that you must be registered as a shareholder
to collect the next dividend. You become the owner of record on the third
business day after you purchased the shares.
Ex-dividend date: the first day that new buyers are not
entitled to collect the next dividend. The ex-dividend date is
two business days before the "owner of record" date
(business days are days when New York City banks are open, not
stock market days). In the case of very large dividends (at least 25%
of the share price), to collect the dividend, you cannot sell until at
least one market day after the
Payment date: the day that the dividend should be deposited into
your brokerage account.
Thus, in most instances, you could purchase shares on the
day prior to the ex-dividend date, sell on the ex-dividend date, and still collect the dividend on the payment date.
Dividend Capture Strategies
That you only need to own a stock for one day to collect the dividend
has inspired many investors to pursue various “dividend capture” strategies,
which typically involve buying a stock before the ex-dividend date,
thus qualifying to collect the dividend, and then selling some time
Dividend capture players follow a variety of strategies to “capture”
the dividend. Some try to buy before the dividend is announced, some
sell on the ex-date, while others wait for a stock to recover to a
predetermined price before selling. Dividend capture is a
controversial topic and not everybody believes that any capture
strategy can be consistently profitable.
Income Tax Implications
U.S. tax rules say that you have to hold a stock a least 61 days to be
eligible for the maximum 15%/20% dividend tax rate. Consequently, some
dividend capture investors try to hold for that period before selling.
Alas, such strategies are generally unproductive. For starters, doing so would limit you to six
trades per year. Moreover, there is no reason to believe that your trade
would remain profitable after waiting that long.
DD's Dividend Capture Resources
If you want to try a dividend capture strategy, for
starters, you'll need a list of stocks
going ex-dividend. Dividend Detective's Ex-Dividend Calendar, a
Premium feature, lists all stocks
going ex-dividend within the next four weeks. It also outlines our
recommended capture strategy along with the additional data needed to
implement ours and most other dividend capture strategies. If
you're already a DD Premium member, here's a
link to our Ex-Dividend Calendar.
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More Dividend Capture Opportunities
Special dividends are one-time payouts that that are often
much larger than regular dividends. For instance, regular quarterly
dividends typically amount to around 1% of a stock’s trading price
(yield) compared to 3% or 4%, and sometimes much higher, for special
payouts. Those higher yields can translate to better profit
opportunities than regular dividends. D.D. Premium's Special Dividend report lists
all upcoming special dividends that we've evaluated as investable. If
you're already a Premium member, here's Here's a link
to that report.