Can you use the ex-dividend date as an investing strategy

ex-dividend date

The ex-dividend date is a key date involved in dividend stock payments

Knowing your dividend dates will help you get full value from your dividends, but trying to make a quick buck buying and selling around key dividend dates is not worth the risk.

Dividend stocks are an essential part of a good conservative investing philosophy. But there are certain details you should know about the way dividends are paid out.

One of the key details is the ex-dividend date.

The ex-dividend date is two business days before the record date when the shares begin to trade without their dividend. If you buy stocks one day or more before their ex-dividend date, you will still get the dividend. That’s when a stock is said to trade cum-dividend. If you buy on the ex-dividend date or later, you won’t get the dividend. The ex-dividend date is in place to allow pending stock trades to settle.


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An example of using the ex-dividend date in your investing strategy

Here’s how it works when we take TransCanada Corp.’s dividend of $0.52 a share payable on Friday, October 30, 2015, to shareholders of record at the close of business on Wednesday, September 30, 2015.

Two business days before the record date, the shares will begin to trade without their dividend, that is, on the ex-dividend date of September 28, 2015. If you buy a dividend-paying stock one day or more before the ex-dividend date, you will still get the dividend (because the shares are trading cum-dividend). But if you were to buy these shares on the ex-dividend date or later, you would not get the dividend.

How to decide if an ex-dividend date can be used in your investing strategy

“Dividend capture” is the trading technique of buying dividend stocks just before the dividend is paid, holding it just long enough to collect the dividend, then selling it. If you can sell it for as much as you paid for it, you have “captured” the dividend at no cost, other than the transaction costs.

To do this, you would buy shares in stocks just before the ex-dividend date, so you would be a shareholder of record on the record date, and would receive the dividend. Because the stock falls by the amount of the dividend on the ex-dividend date, the strategy then calls for you to wait for the stock to move back to the price where you bought it before the ex-dividend date. At this point, you sell the stock for a break-even trade.

This strategy may be of interest to some investors, including security investors or brokers who execute major trades with very low transaction fees. Corporations may even have tax benefits.

Ex-dividend dates can particularly pay off for these types of investors when markets are rising.

Although there can be value to some investors, you have to pay a brokerage commission to buy the shares, and a commission to sell. The commissions can eat up much of the dividend income, or even exceed the dividend income.

Unfortunately, the average investor doesn’t have much chance of making a significant profit.

Is the ex-dividend date new to you? What do you think of this investing strategy? Please share your thoughts with us.

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