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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
are 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.
Traditional Dividend Capture Strategies
Traditional dividend capture strategies involve buying a stock before the ex-dividend date,
thus qualifying to collect the dividend, and then selling some time
Within that general framework, traditional dividend capture players
employ a variety of sub-strategies. 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 will be consistently profitable.
Dividend Capture Income Tax Implications
U.S. tax rules say that you must 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.
You can mitigate
these issues by limiting your dividend capture trades to tax-sheltered
accounts such as IRAs or Roth IRAs. If held in an ordinary IRA,
dividends aren't taxed until you begin taking
distributions from that IRA. If held in a ROTH IRA, dividends are not
taxed at all.
DD's Traditional Dividend Capture
Dividend Detective's Ex-Dividend Calendar, a
Premium feature, lists all stocks
going ex-dividend within the next four weeks. It includes the data that
you'd need to implement traditional capture strategies. If you're already
a DD Premium member, here's a
link to our Ex-Dividend Calendar. If
not click here to join.
DD's Advanced Dividend Capture
We have devised an Advanced Dividend Capture Strategy that we've found
produces better returns than the traditional strategies that we've tested.
Advanced Dividend Capture Resources
Dividend Capture Resources section includes everything you need to
implement our Advanced Capture Strategy including instructions on how to
implement the strategy and a special table that includes all needed
data. If you're already a DD Premium member, here's a
link to that page. If
not click here to join.
Special Dividend Resources
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
compared to 3% or 4%, and sometimes much higher, for special
dividends. 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, plus our recommended Special Dividend Trading Strategy. If you're already a Premium member, here's a link
to that report. If not click here
Start Capturing Dividends Now
DD Premium costs $5 for the first month,
and $15/month thereafter, and those prices include all DD Premium
features, including access to DD's Traditional Dividend
Capture Strategy Resources, Advanced Dividend Capture Strategy
Resources, and Special Dividend Capture Resources. There is no minimum subscription. You could cancel
at any time. Click here
to subscribe or here
for more information.