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

using ex dividend date

Use the ex-dividend date as an investing strategy to get the most dividend returns

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.

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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.

An example of using the ex-dividend date as an investing strategy

Here’s how it works:

Let’s say a company’s dividend of $0.52 a share was payable on Friday, February 26, 2021, to those shareholders of record at the close of business on Wednesday, January 27, 2021.

Two business days before that record date, the shares began to trade without their dividend, that is, on the ex-dividend date of January 25, 2021. If you bought this dividend-paying stock one day or more before the ex-dividend date, you still got the dividend (because the shares are trading cum-dividend). But if you bought these shares on the ex-dividend date or later, you would not receive 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 a dividend stock 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 (and that’s not guaranteed), 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.

Dividend capture strategies may have appeal for securities dealers or brokers executing huge trades with very low transaction costs. Corporations may even have tax benefits. But for the average investor, there’s little chance of making a significant profit.

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


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