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Dividend Capture Strategies

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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

Before going 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.

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 later.

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.

Join Dividend Detective Premium

DD Premium costs $5 for the first month, and $15/month thereafter, and those prices include all DD Premium features. There is no minimum subscription. You could quit at any time. Click here to subscribe or here for more information.

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.

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