The ins and outs … of the ‘dividend capture strategy’

Article Excerpt

Dividend stocks can offer tax advantages and lead you to better investment returns. But can a “dividend-capture strategy” increase your profits even more? A dividend-capture strategy is a trading technique where you buy a stock just before the dividend is paid, hold it just long enough to collect the dividend, and then sell it. If you can sell it for as much as you paid, you have “captured” the dividend at no cost, other than the transaction costs. In theory, this can pay off when stock markets are rising. Of course, any strategy that involves buying shares 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. In fact, they may even exceed the dividend income. In the end, a dividend-capture strategy may only really be suitable for securities dealers or brokers who execute huge trades with very…