Dividend capture

Discussion in 'Trading' started by ctrader, Apr 23, 2003.

  1. ctrader


    Does this work:

    Dividend Capture
    Investment strategy whereby the investor buys the stock roughly two weeks before it goes ex-dividend and then sells it about two weeks after it has gone ex-dividend in order to collect the dividend and make a small profit on the trade. On the stock's ex-dividend date, its price will drop by the amount of the dividend. The theory is that the stock's price will work its way back up to the price it was at before the ex-dividend date. This allows the investor to sell slightly above the purchase price. Thus, the investor is able to collect the dividend and realize a small capital gain in about four weeks. Also referred to as a "dividend rollover plan
  2. def

    def Sponsor

    Let's assume for starters you have a valid theory about stocks making their way back (although fundamentally this makes no sense). How are you going to account for the variance over the period between buy and sell? The variance alone will most likely be greater than the dividend.
  3. I think this may be the Holy Grail.


  4. lescor


    Yes, holding un-hedged longs for 4 week periods to collect a 30 cent dividend does sound like a smashing good idea, maybe it is the holy grail!
  5. There was this guy who started at an office I used to trade at about 2 years ago, and this dividend capture was his entire strategy.

    It was all he did.

    He opened an account, and started trading the strategy while we were teaching this week long class on how use the software, interperate the level II and all that nonsense they taught back in the day.

    So what happened with his trading. Well, he basically broke even after about 5 weeks of doing it, so it must have been slighly profitable because he was covering the juice and everything.

    Then you will never believe what happend.

    This has nothing to do with the actual dividend strategy but it is funny if only because it shows what things were still like during the last months of the "bubble" even as the market had begun to roll over.

    He bought one of the fuel cell stocks because he heard on CNBC I think that they were paying a dividend in STOCK. Even the press release said that. It was 3 for 1 or maybe even 4 for 1. Anyway, he buys like 1000 of it about 2 weeks before the ex date, and the stock immediately goes down a lot. He is a bit freaked out because until then all his trades had been pretty planned out, and most of the companies were boring old economy stocks. This thing was trading at 100 per share or something I think.

    Anywa after 2-3 days he gets so concerned that that he asks me about it, I don't know that much about dividends or ex dates, but I look at it with some other people and as far as we can tell it is a stock split, the press release refers to it as a stock dividend or something, but it was pretty clear that it was just a stupid stock split. So that is what we told him.

    Anyway, long story short, he gets on the message boards and convincences himself that he is right, he is total denial, and the thing keeps dropping, I think they even did a spot secondary or something during the two weeks he is waiting for his additional shares and price it 4-5 bucks below the previous days close.

    Finally the day before the "dividend" comes and he is still convinced that he is going to make up for his horrible loss because as soon as he gets those additional shares he is going to sell them and abandon the strategy (the irony is, this was never a part of his strategy, duh).

    Well, ofcourse as everyone reading this knows by now, the he gets his additional shares alright but the stock opens 40 points lower (or something) the next day off the SPLIT. I think he covered for 50% loss in two weeks that day since he was margined.

    I kid you not, he called and spoke with the CFO that day and demanded to know why the press release had referred to the "split" as a dividend.

    Whatever the CFO said, must not have been good enough, because he said he was gonna sue and stormed out and we never saw him again.

  6. Why not just buy it on the day before the ex-dividend date and sell it on the ex-dividend date?
  7. Another example...CBNJ went ex-dividend today.Pays a dividend of $1.05 a share.Stock closed at 21.10 yesterday and opened higher today at 21.50.Would have been a 13.7% return,both dividend and gain together,overnight in a margin account.
    So sometimes the strategy works out very well.
  8. There's too much risk of holding common stock for this long a period of time. I think it has a better chance of working with preferred stock and income producing exchange traded funds. But these stocks are more sensitive to interest rate changes and are thinly traded with wide spreads. Difficult to buy and sell in volume.
  9. I'm talking one day,maybe a few days max.
    #10     Apr 24, 2003