The stock market strategy called dividend capture is focused on buying and selling shares of stock around the ex-dividend date. The goal is to own the stock for only a few days, collect the dividend and use the money to buy shares of another stock to collect the dividend. Instead of earnings just four dividend payments a year, the trader practicing dividend capture may be able to collect dividends six to eight times or more.
- Skill level:
Develop a database of high-dividend stocks for dividend capture trading. The database should include the usual record, ex-dividend and payment dates for each dividend period of each stock. The ex-dividend date is two business days before the record date.
Organise your list of dividend stocks to have the ex-dividend dates spread thoughout the year. Many stocks pay dividends at about the same time, so you want to find stocks with dividend payments early in the month, later in the month and during the non-standard months. At least a two- to three-week difference between ex-dividend dates will allow trading for dividends.
Sign up for investor alert e-mail notification on the investor relations page of each stock's company website. Dividends are not paid on the exact same date each year and the email notifications will let you know when a company has declared a dividend, the amount and the record date.
Enter buy orders for the selected shares no later than the day before the ex-dividend date. Hold the shares through the ex-dividend date and sell the shares when the share price has recovered to the pre-ex-dividend date price. Each stock price acts differently around the ex-dividend and record dates so the stock holding period may be a few days to a few weeks.
Tips and warnings
- On the ex-dividend date, the share price will drop by the amount of the dividend. This prevents investors from buying one day before the ex-dividend date and selling on the ex-dividend date to collect the dividend. You must wait for the share price to recover from the ex-dividend price drop.
- Study the stock price history for two weeks before and after the ex-dividend date to choose the best dates to buy and sell shares.
- Trading the dividend capture strategy in a margin brokerage account allows the purchase of twice as many shares and earning twice as much dividend with the same amount of trading capital.
- Dividend capture involves a significant amount of stock buying and selling, resulting in a large number of stock commissions. Commission costs should be considered in calculating potential returns.
- Dividend capture will lose money if the stock price falls on or after the ex-dividend date and does not recover.
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