written by reader INTC — Dividend Capture?

By Anonymous Questions, March 14, 2013

Dear Gum, or Mr. Shoe,
My usual genuflection for your great and entertaining work!

A kinda dumb question, but…
Re your semi-recommend of INTC regarding the 4% dividend, how long does one have to hold a stock to get that divvy, and how often is it distributed?
And would it be a possible MO to move in and out of stocks just to get the divvy on them?
It seems so cheeky that there must be reasons why one cannot.

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Travis Johnson, Stock Gumshoe

If you’re going to genuflect, you can call me whatever you want!

You have to hold a stock before it goes ex-dividend (“ex-dividend” means the stock trades without rights to that dividend payment) to get the dividend, you can sell it anytime after it goes ex-dividend and still get the dividend. If you want to pay the lower qualified dividend tax rate, you need to hold the stock for a longer period to qualify for that — more than 60 days is the rough rule. People do try to trade around dividends and use the “Dividend capture” strategy, selling after you collect the dividend and moving that cash, after the holding period, to the next stock to catch that next dividend and therefore get yourself six dividends a year instead of four for the same amount of capital (or more, if you’re not worried about taxes) — commissions eat up some of that, obviously, but it also doesn’t necessarily work with a small portfolio of stocks because the stock movement can easily be enough to mitigate the boost from receiving more dividends.

There’s a pretty good explanation of dividend capture from Dividend Detective here: http://www.dividenddetective.com/dividendcapture.htm

There are some mutual funds that use the dividend capture strategy, at least in part — the Alpine funds used to be the leaders in this and may still be, they have a few closed-end funds that trade at a discount and use dividend capture rotation as one of their strategies, including AOD, but that fund has done substantially worse than the plain vanilla S&P 500 index throughout almost all of its history, even counting the high dividend distributions. I think buy and hold and reinvest is a better strategy for dividend growth companies, with selling covered calls perhaps being more appealing than the dividend rotation if you want a bit more oomph. That’s just my opinion, of course.

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hblytt
hblytt
7 years ago

I would add to the discussion on dividend capture that a stock with a fat dividend (e.g. 3% per quarter) generally drop in value, by the amount of the dividend, on the day it goes ex-dividend.

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allenwil
allenwil
7 years ago

if the stock drops the amount of the dididend u will lose money as u pay to buy & sell.

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