Precise timing is needed to buy the stock at an appropriate level, hold it for a short time, collect the dividend, and actually make money on the transaction (if you collect $1 dividend but sell the stock at a price $1 lower than you bought it, it’s nothing but a wash). This fact makes capturing dividends a much more difficult process than many people initially believe. So if stock XYZ will pay a $1 dividend, its share price will open up on the ex-dividend date about $1 lower. The stock exchanges automatically negatively adjust the stock’s price on the ex-dividend date to reflect the upcoming payout. Negative Price Adjustment on the Ex-Dividend DateĬompanies don’t just allow investors to hold their stock for one day, collect the dividend that is meant to reward long-term shareholders, and sell it immediately. A list of the major disadvantages includes: Advantages of the Dividend Capture StrategyĪlthough capturing dividends can be an easy way to make quick income, it comes with several drawbacks. The investor collects the $1 dividend a few weeks later, resulting in a total return of $0.50.Įssentially, the dividend capture strategy aims to profit from the fact that stocks do not always trade in strictly logical or formulaic ways around the dividend dates.

An investors purchases XYZ during this time, then sells the stock on the ex-dividend date when it is trading at $99.50. Lets now say that XYZ Corp is trading at $100 per share prior to the ex-dividend date. In practice, however, this does not always happen and is the reason why investors utilize the dividend capture strategy. On the ex-dividend date, XYZ should theoretically be trading at $99. Prior to the ex-dividend date, XYZ trades at $100 per share. Because investors purchasing the stock on the ex-dividend date do not receive the dividend, the price of the stock should theoretically fall by the dividend amount.įor example, Lets say XYZ Corp pays a $1 dividend. Theoretically, a stock’s price should reflect the expected dividend payment prior to the ex-dividend date.

Dividend capture strategy calendar