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Dividend capture involves buying a stock before the dividend is
paid, holding it for a predetermined period, and then selling it and
moving on to the next dividend stock. In essence, dividend capture
collecting (capturing) the dividend and then selling the stock for the
same price or more than you originally paid.
Dividend Capture Definitions
Before getting into dividend capture details, here are the definitions that you need
Declaration date: the day that a firm announces its next dividend.
Such announcements are almost always made via a press release.
Record date: the date that you must be registered as a shareholder
to collect the next dividend.
Ex-dividend date: the first day that new buyers are not entitled to
collect the next dividend. The ex-dividend date is usually
two business days before the "shareholders 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), the ex-dividend date is one market day after the
Payment date: the day that the dividend should be deposited into
your brokerage account.
Thus, you only have to own a stock for one day—the market day prior to the
ex-dividend date, to collect a dividend. For example, you could purchase a
stock on the day prior to the ex-dividend date, sell it on the ex-dividend
date, and still collect the dividend on the payment date.
Dividend Capture Strategies
In theory, on the ex-dividend date, the share price opens at the previous
day’s close, minus the dividend. For instance, if a stock paying a $0.25
per share dividend closes at $15.00 on the day before the ex-dividend
date, it should open at $14.75 on the ex-date. In practice, other market
forces, namely the normal push and pull triggered by the balance of supply
vs. demand for the shares, often swamps out the ex-dividend effect.
On the theory that the dividend announcement drives the share price up,
some dividend capture strategies involve purchasing before the
announcement. Then, on the assumption that the share price moves up as the
ex-dividend date approaches, some strategies sell on the day before the ex-dividend date,
others sell on the ex-date, and others involve waiting until the share price bounces back from the
theoretical ex-dividend day drop.
U.S. tax rules say that you have to hold a stock a least 61 days to be
eligible for the maximum 15% dividend tax rate, so many strategies involve
holding for that period before selling. Alas, doing so would limit you to six
trades per year.
Dividend Capture Resources
If you want to try a dividend capture strategy, you need a list of stocks
going ex-dividend (dividend calendar). Dividend Detective Premium provides
a dividend calendar showing all stocks
going ex-dividend within the next four weeks. The calendar shows the
dividend amount, the dividend yield, the ex-dividend date and the dividend
pay date. Here's a link to the dividend
D.D. Premium also offers a Special Dividend report that
lists upcoming special dividends (one-time payouts) that we investable
according to our proprietary criteria. Here's a link
to that report (DD Premium subscription required).