Sunday, 15 May 2016

Dividend Capture - How to Get Paid Twice

Investopedia defines dividend capture strategy as an investment technique that focuses on quickly capturing the dividend issued by a corporation, without intending to hold the investment over a long period of time. To understand how this works you need to know what ex dividend is. Again Investopedia defines  as when declared dividend belongs to the seller rather than the buyer.
Compare two monthly dividend paying stocks

Northview REIT It pays a monthly dividend of 13.5 cents a share and goes ex dividend on the 24th of each month.

XIE (ishares dividend ETF) pays a monthly dividend of 8 cents a share and goes ex dividend on the 27th of each month.

So in theory I could buy Northview on the 24th, sell it on the 25th, buy XIE on the 26th and sell it on the 27th and collect dividends on both. Doing this would increasing my income by 60% a year with minimal risk.

OK what’s the catch. While it’s quite simple. The price could drop after I bought meaning I would sell it at a loss. So it’s important that you do this only with stocks that you’re prepared to hold for the long term. Both the afore mentioned stocks dropped some 25% in the bear market of 2015. So you really want to do this with stocks you like.