Dividend Capture Trading (Bought MAIN)


2018 is going to be a challenging year for growth and we think that this is a great time to own some quality dividend paying stocks. As you may already know, when the price of a stock goes down and the dividend payout stays the same (or increases like the stocks we own in our Dividend Growth portfolio), your effective yield on cost rises.

Typically, these dividend yields are quoted on an annual basis when in fact the dividend payouts are on a quarterly basis. For example, a dividend payment of $1.00 per share would be paid out as $0.25 per share each quarter.

So How Do You Receive A Dividend? 

In order to receive a dividend you must own the stock or sell the stock on the ex-dividend date. You cannot buy the stock on the ex-dividend date and receive a dividend.

Dividend Capture Trading

We have a strategy to “capture” these dividends paid out. In essence, you do not need to own one stock all 365 days of the year when in reality to collect the full dividend you only need to own the stock prior to the ex-dividend date and sell on the ex-dividend date. There are two great sites for tracking ex-dividend dates. Do not pay for this service, two free sites that track ex-dividend dates in a friendly format are Nasdaq and The Street.

A Live Example

Today, 1/16/2018 in my personal portfolio I bought Main Street Capital Corporation (MAIN). They have an ex-dividend date of 1/18/2018 and I will sell the stock on this date in order to collect the dividend which is 0.19/share. Not the most exciting dividend perhaps, but when the market has very poor days it provides a great opportunity for these dividend capture strategies. The stock price goes down and your effective yield rises.

In theory, the stock price is reduced by the dividend paid out on the ex-dividend date and there is no gain or loss from the dividend payment. In fact, holding stocks for such a short time will have negative tax consequences compared to holding the stock throughout the year so it is best to use a tax advantaged account when implementing such a strategy. The benefit is collecting a dividend every week and a half (can vary depending on how long it takes funds to settle) versus collecting a dividend only four times a year.

My view is that if you combine a swing trading strategy with a dividend capture strategy you can generate some excellent returns. For example, Buckle Inc (BKE) recently had an ex-dividend. It is not the dividend itself which I believe it the secret sauce, rather the increased demand prior to a dividend payment. When the general markets are performing poorly, stocks that are just about to pay a dividend should have some benefit from less sellers willing to remove a position just prior to receiving a dividend payout. As I mentioned, many stocks only pay a dividend once a quarter. Do you think many people would knowingly sell a stock just prior to receiving a dividend? This is one of the strongest fundamental reasons behind why I believe this strategy can work.

I will continue to post my dividend capture trades and you can track for yourself if this strategy is something you would be interested in. Thanks for reading.


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