Call warrant trading strategy24 comments
Algorithmic trading system design
But I want to break away from the routine and talk about a little known strategy called — dividend capture. Looking for the best dividend stocks?
Download my top 10 list of dividend stocks here. Dividend-paying companies pay out dividends periodically. Some pay them out monthly, while others pay quarterly.
Dividends are the icing on the cake for investors who hold stocks. The process is spread out over four key dates, and timing is everything when it comes to a dividend capture strategy. Dividends are paid out on a fixed schedule with four key dates.
As you can see, timing is crucial for this dividend capture strategy to work. In order to actually gain from buying and selling a stock, you need to know all the dates and trade at the perfect opportunity. The dividend capture strategy is based on the volatility and unpredictability around key dividend dates. The biggest advantage with the dividend capture strategy is the fact that there are simply so many stocks to pick from.
There are hundreds of different stocks paying different rates of interest. Some of these stocks are well-known brands like Apple and Walmart, while others are lesser known but they pay incredible yields. These yields could be multiple times the amount of money you would expect from a savings account or CD. Another clear advantage is that this strategy is reliable.
If you create a reasonable day-trading dividend capture strategy, you can easily generate a high return over the course of a year. You can simply read up a little about the company, check the dividend yield, and figure out the payment schedule.
A dividend capture strategy is not an easy way to get wealthy quick. There are several factors that limit the potential of this strategy. The biggest disadvantage is the negative price adjustment. This mechanism of the stock market prevents a dividend capture strategy. Another issue is the way these dividends are treated in terms of taxes.
But for a dividend to qualify for this tax treatment the stock must be held for at least 60 days in the days before the ex-dividend date. Holding a stock for so long makes the dividend capture strategy nearly impossible. Unpredictability is another hurdle. If the stock price adjusts more or less than expected on ex-dividend date it could seriously impact the whole dividend capture strategy.
So if the company you bought makes a major negative announcement on the ex-dividend date, the stock price could fall far below the amount you hope to recover from receiving the dividend later. Of course, the company could also make a positive announcement on the ex-dividend date that sends the stock skyrocketing. If the stock price gains and you receive a dividend your dividend capture strategy has performed better than expected.
Finally, brokerage fees could reduce the profits from this dividend capture strategy. Your trades need to account for the brokerage fees to make sure the strategy works. The only cost-effective way to pull off this strategy is to use an online broker with a flat rate of commissions. The dividend capture strategy is very popular with short term day traders.