The Dividend Capture strategy
Dividend is the one of most loved thing in stock market. Because, it help us to earn something by just holding stocks. Most of people are earning a good amount of dividend. According to fool.com,warren buffett’s company “Berkshire Hathaway” is set to collect more than $5 billion in dividend income.
If you guys want to increase your dividend income please read this article and share with your friends.
What is the dividend ?
Dividend is a kind of cash or a share of stock that is paid by a company to its shareholder for investing and holding the share. Most people like to invest in these types of stocks.
On the other hand most companies use their profit to reinvest to increase profit.
And today in this article, we will talk about a strategy that can increase your dividend income by 50% and the name of that strategy is “the dividend capture strategy”.
What is “the dividend capture strategy” ?
The dividend capture strategy means, buying a stock on or after the ex-dividend date and locking the dividend amount and selling that stock.
However, to perform that activity an investor should have a deep knowledge about the dividend date. Because understanding the game of dividend date is very important to win this strategy.
Important Dividend Dates –
1) Declaration date– The declaration date is sometimes called the announcement date. And it is a very important date because on that day the board of directors of the company announce that they will pay the dividend, how much they will pay, the ex-dividend date, and the payment date.
2) Ex-Dividend date– This is also a very important date because investors who buy stock on or after this date will never receive the declared dividend amount. Because on the ex-dividend date the stock price is set down by dividend price.
For example – Assume a stock X which declared $2 dividend per share with an ex-dividend date of 5 July. So the investor who bought the stock on …,1,2, 3, 4 or before 5th July will receive that dividend amount. Because on 5th July the stock value of X will adjust down by $2 from the closing price of 4th July but this thing never always happens.
I know this thing is quite complicated but we have to understand this carefully.
Important – The one other important point is that people who buy stock before ex-dividend date and sell the stock on or after ex-dividend date can still receive a dividend.
3) Record date – This is the next working day of ex-dividend stock and on this date the company checks its record to identify which investor is eligible for that dividend. This is not as important as the ex-dividend because eligibility is determined by ex-dividend date.
4) Pay date – This the date for which all of us are waiting because on this date the dividend is paid to its investor and generally this date is 2 week or 1 month after the ex-dividend date.
Dividend capture in Simple words –
Once you know all dividend dates the rest of the process is quite simple. Because you just have to buy stock before ex-dividend date and sell it on or after ex- dividend date and you will receive the fixed dividend amount.
How –
Let’s assume, a company x and it announces $1 in dividend and its share is trading at $100 before ex-dividend date and after ex-dividend date the stock can be adjusted to $99. But it’s not always happen and here the dividend capture works.
Means an investor bought a share for $100 before ex-dividend and after or on ex-dividend he sells the share at $99.50 and collects $1 in dividend. which means he earned $0.50 per share.
Check dividend history – Before purchasing any stock you should check the dividend history of that particular stock. Make sure that they are increasing their dividend over time. However, the future dividends are not guaranteed , companies that pay dividends usually follow the same pattern. So you should research deeply about the company stock to check its dividend yield in the past.
what are the Advantages of “The Dividend Capture Strategy” –
– Thousands of dividend paying stocks are available in the market, means you can use different stocks with high dividend yield for just capturing the dividend.
– They can earn high profit with high yield and repeat this strategy with different stock for just dividend.
– The one thing that you should be aware of before doing this is detailed knowledge of dividend dates. And try to pick a high reputed dividend calendar from the market.
Drawbacks –
– Decline in stock price – Well, no company wants to play this game with stock because they want to pay this reward to people who hold stock for long term. So mostly, the big stock exchanges adjust the stock price negatively on ex-dividend date.
– Broker fee- Well, if you are using a full- commission broker to buy and sell stock then it could be less beneficial because they charge on every trade you make.
– Loss of favorable tax treatment.
Disclaimer- Each and every day stocks make lot’s of movements and a stock price can go up or down. Moreover, we are not a financial adviser so please gain deep knowledge about this strategy or ask your financial adviser before taking any action.
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