The Dividend Capture Strategy - Bad Idea?

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How to Use the Dividend Capture Strategy

The dividend capture strategy is an income-focused stock trading strategy popular with day traders. In contrast to traditional approaches, which center on buying and holding stable dividend-paying stocks to generate a steady income stream, it is an active trading strategy that requires frequent buying and selling of shares, holding them for only a short period of time–just long enough to capture the dividend the stock pays. The underlying stock could sometimes be held for only a single day.

Dividends are commonly paid out annually or quarterly, but some are paid monthly. Traders using the dividend capture strategy prefer the larger annual dividend payouts, as it is generally easier to make the strategy profitable with larger dividend amounts. Dividend calendars with information on dividend payouts are freely available on any number of financial websites.

Dividend Timeline
At the heart of the dividend capture strategy are four key dates:

Declaration date: The board of directors announces dividend payment. This is the date when the company declares its dividend. It occurs well in advance of the payment.
Ex-dividend date (or ex-date): The security starts to trade without the dividend. This is the cut-off day for being eligible to receive the dividend payment. It's also the day when the stock price often drops in accord with the declared dividend amount. Traders must purchase the stock prior to this critical day.
Date of record: Current shareholders on record will receive a dividend This is the day when a company records which shareholders as eligible to receive the dividend.
Pay date: This is the day when the dividend is paid and the company issues dividend payments

How the Strategy Works
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. If the share price does fall after the dividend announcement, the investor may wait until the price bounces back to its original value. Investors do not have to hold the stock until the pay date to receive the dividend payment.

Theoretically, the dividend capture strategy shouldn't work. If markets operated with perfect logic, then the dividend amount would be exactly reflected in the share price until the ex-dividend date, when the stock price would fall by exactly the dividend amount. Since markets do not operate with such mathematical perfection, it doesn't usually happen that way. Most often, a trader captures a substantial portion of the dividend despite selling the stock at a slight loss following the ex-dividend date. A typical example would be a stock trading at $20 per share, paying a $1 dividend, falling in price on the ex-date only down to $, which enables a trader to realize a net profit of $, successfully capturing half the dividend in profit.

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#Dividends #DividendCapture #DividendIncome
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DISCLAIMER:
This video is for entertainment purposes only. I am not a legal or financial expert or have any authority to give legal or financial advice. While all the information in this video is believed to be accurate at the time of its recording, realize this channel and its author makes no express warranty as to the completeness or accuracy, nor can it accept responsibility for errors appearing in this video.

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