Topic: How To Invest

Pat: What do you think about a strategy of making money by buying stocks just before they pay a dividend, collecting the dividend and then selling the stock? Could this prove profitable? Thanks.

Article Excerpt

“Dividend capture” is the trading technique of buying a 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, you have “captured” the dividend at no cost, other than transaction expenses. To do this, you would buy a stock just before the ex-dividend date (see below) 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…

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