Dividend capture

There is a somewhat unnatural tactic for playing with dividends. The idea is to buy a stock just to collect the dividend, then resell it a few days later. This is paradoxical since the dividend represents a share of the profit paid to shareholders, as a reward for the capital they have invested in the company. Capturing dividends is therefore like "eating" a little of the company's profit without being invited to the meal. But is this strategy really worth it?

Let us first briefly recall what the ex-dividend date. If you buy stocks on or after the ex-dividend date, they trade without dividends. You will have to sit out a round and wait for the next distribution. On the other hand, if you buy a dividend-paying stock before the ex-dividend date, you will receive the precious windfall immediately.

Long-term investors don't focus too much on this "ex" date. In contrast, investors employing the dividend capture strategy buy a high dividend-paying stock, receive their share of the payment, and then sell the shares a few days after the ex-dividend date. 

Dividendinvestor (non-sponsored link) offers you a paid tool in the form of a calendar that allows you to choose from several stocks based on a chosen date. You determine the amount invested and it gives you the expected gain in dividends, based on the yield offered by the stocks. It seems so easy, right?

But dividend capture strategies are unlikely to create lasting economic value, and also result in the payment of high transaction fees. It should also be noted that the stock price rises during the days preceding the ex date, then falls just after, cancelling out any form of potential gain by capture. We then say that the dividend is already included in the price. You must therefore wait until the stock rises again to the price at which it was purchased, before selling it.

Ultimately, the dividend hunter can remain exposed to this stock for a few weeks, which could quickly backfire if the price falls. These factors make the dividend capture strategy a difficult game to play.