Why not buy just before the dividend, then sell?

Dividends and Taxes To make things worse, dividends create a tax liability , meaning you'll have to claim the dividends as taxable income on the following year's income tax return. Check your email and confirm your subscription to complete your personalized experience. Hot Reads - Silver Medal. Option Calculators and Stock Screeners. Theoretically, the dividend capture strategy shouldn't work. Thus, buying a stock before a dividend is paid and selling after it is received has absolutely no value except a partial return of the capital invested in the stock in the first place.

Part of the appeal of the dividend capture strategy is its simplicity; no complex fundamental analysis or charting is required. Basically, an investor or trader purchases shares of the stock before the ex-dividend date and sells the shares on the ex-dividend date or any time thereafter.

The Dividend Capture Strategy 101

Thus, buying a stock before a dividend is paid and selling after it is received has absolutely no value except a partial return of the capital invested in the stock in the first place. To make things worse, dividends create a tax liability , meaning you'll have to claim the dividends as taxable income on the following year's income tax return. Waiting to purchase the stock until after the dividend payment may be a better strategy because it allows you to purchase the stock at a lower price without incurring dividend taxes.

Why not buy just before the dividend, then sell? By Brian Beers February 1, — 2: Dividends and Taxes To make things worse, dividends create a tax liability , meaning you'll have to claim the dividends as taxable income on the following year's income tax return. A dividend is determined quarterly after a company finalizes its income statement. Dividends are paid either by check or Learn about the various information sources from which investors can obtain information about upcoming ex-dividend dates Learn how to differentiate between dividend yield and dividend return, and see why dividend yield is the more popular rate Understanding the dates of the dividend payout process can be tricky.

We clear up the confusion. A significant benefit of trading dividends is the potential tax benefit. This rate varies depending on your tax bracket. Although this return on investment may appear small, the benefit can be realized frequently, and the aggregate of these trades can be significant. Disadvantages of trading dividends are: A lot of capital must be put at risk for a relatively small return. There are strategies to reduce or eliminate this risk using options see the next section.

The idea of being subject to overnight risk can be unacceptable to most experienced traders. The dividend distribution is unavailable during the period between the ex-dividend date and the pay date.

Implementing this strategy requires tracking dividend payments Trades must be made at the close of trading and again at the open each time a dividend play is made, requiring the trader be available to trade at frequent intervals. Option Calculators and Stock Screeners.

Dividend Timeline

The stock price will fall on ex-dividend date, so the key to this strategy is to pick exceptionally strong companies so the stock price will rebound sooner rather than later. A strategy involving timing of purchases like this is clearly a trading strategy. We teach you everything you need to know about employing a dividend capture strategy. For starters, theoretically, the share price drops by the dividend amount on the ex-dividend date. But, in fact, many different factors influence a stock's price movements on any given day, and prices typically don't drop by the exact dividend amount on .