Dividend Capture Strategy

The Important Dates of a Dividend

There are four major dates in the process of a company paying dividends:

Declaration date – This is the date on which the board of directors
announces to shareholders and the market as a whole that the company will
pay a dividend.

example: Aboitiz Power (AP)
See disclosure here

Ex-date or Ex-dividend date

  • “Ex = not”, meaning you will not receive dividends if you buy on ex-date
  • You will only receive dividends if you buy at least 1 day before the the ex-date

Who will receive dividends

  • Buyers on or before March 12 then sell on March 13 (even at open)
  • Buyers on or before March 12 then sell after March 13

No need to wait for the record date before you can sell to receivedividends, again, you can sell on ex-date and you will be entitled of theirdividends.

Who will NOT receive dividends

  • Buyers on or after March 13
  • Buyers on March 12 but sold on the same day

Date of Record – this is just for accounting purposes only

Date of Payment – the date when you will receive your dividends

If you buy your AP shares at March 2, Friday’s close of 33.15and hold them until ex-date, you will gain 3.98% (1.32/33.15)
So even if your shares drop to 32 on ex-date, you still didn’t lose.
(Commissions and other charges not factored in computation)
This is not a solicitation to buy AP, that’s just an example. ok?

Dividend Capture Strategy

An investment strategy in which a dividend-paying stock is purchased right before the ex-dividend date, which gives the purchaser the right to the divided, with the position being sold off shortly after the ex-dividend date. The sole intention of this practice is to reap the value of the dividends while breaking even on the shares. Ideally, this strategy is designed to maximize short-term return on shares while minimizing risk.

Also known as a “Dividend Rollover Plan”.

Read more: click here

On the other hand…

A Money Machine?

Now that we understand that a dividend can be received by purchasing the stock before the ex-date, can we make more money? Nope, it’s not that easy. Remember, everybody knows when the dividend is going to be paid, and the market sees the dividend payout as a time when the company is giving out a part of its profits (reducing its cash). So the price of the stock will drop approximately by the amount of the dividend on the ex-dividend date. The word “approximately” is crucial here. Due to tax considerations and other happenings in the market, the actual drop in price may be slightly different. In any case, the point is that you can’t make free profits on the ex-dividend date. ~investopedia

Read more: click here


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