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Patrick McKeough is one of Canada’s top safe-money advisors. The Wall Street Journal, Forbes and The Hulbert Financial Digest have all recognized his ability to find stocks with hidden value. He is editor and publisher of The Successful Investor, Stock Pickers Digest, Wall Street Stock Forecaster and Canadian Wealth Advisor; inventor of the Quick Profit/Value System and the ValuVesting System™. A best-selling Canadian author, he wrote Riding the Bull, the book that predicted the 1990s stock-market boom.

Dividend stocks: 4 dates that dividend investors need to know

September 13, 2011 -  Be the first to comment
Posted by: Pat McKeough Filed in: Income Investing
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Companies that pay dividends have a “record” date. That raises two interesting questions investors often ask.

Does the record date determine who owns the stock on that day and who gets the dividend? If so, why not buy stock the week before the day of record, collect the dividend and then sell the stock? Here is what you need to know.

There are a number of dates related to payments from dividend stocks:

  1. Declaration Date: Several weeks in advance of a dividend payment, a company’s board of directors sets the amount and timing of the proposed payment. The date of that announcement is known as the declaration date.
  2. Payable Date: is the date set by the board on which the dividend will actually be paid out to shareholders.
  3. Record Date: Only shareholders who hold dividend stocks before the payable date will receive the dividend payment. That date is known the record date, and is set any number of weeks before the payable date.

    Recent examples include TransCanada Corp.’s dividend of $0.42 a share payable on Monday, October 31, 2011 to shareholders of record at the close of business on Friday, September 30, 2011.
  4. Ex-dividend Date: Two business days before the record date, the shares begin to trade without their dividend. This date is the ex-dividenddate. If you buy dividend 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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What is “dividend capture?”

“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 dividend stocks just before the ex-dividend date, so that 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 can pay off when stock markets are rising. Of course, any strategy that leads you to buy can pay off when stock markets are rising. However, 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. They may even exceed the dividend income.

Dividend-capture strategies may have appeal for securities dealers or brokers who are executing huge trades with very low transaction costs. They may also have tax benefits, particularly for corporations. But the average investor has little chance of making a significant profit.

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