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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

Here 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.

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 later.

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 Strategy Resources

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 Strategy

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

Our Advanced 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 to join.

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.

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