The Dividend Capture Strategy (Does it Work?)
ฝัง
- เผยแพร่เมื่อ 26 ก.ค. 2024
- We're taking a look at the surprisingly simple dividend capture strategy, an approach that enables you to secure dividends EVERY DAY. Ultimately, what I want to figure out with the dividend capture strategy is: does it work?
00:00 - Intro
0:41 - Dividend Capture Strategy Explained
3:02 - Does the Dividend Capture Strategy Work? (3 Problems)
3:29 - Problem 1: The Theory of an Efficient Market
5:26 - Problem 2: Dividend Capture Taxes & Costs
7:04 - Problem 3: Market Sentiment (Inability to Time the Market)
7:38 - Dividend Capture Tips
7:48 - Tip 1: Vetting Dividend Capture Stocks
9:06 - Tip 2: Using Tax-Advantaged Accounts
9:46 - Tip 3: Targeting Special Dividends
10:22 - Tip 4: Dividend Capture with Options
11:26 - A Final Warning on the Dividend Capture Strategy
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LINKS & RESOURCES
Benzinga Ex-Dividend Calendar:
www.benzinga.com/calendar/div...
Referenced Studies:
Ex-Dividend Prices from 1962 to 1987:
www.minneapolisfed.org/resear...
Ex-Dividend Prices in 2007 & 2008:
www.researchgate.net/publicat...
Learn about the MANY benefits of a Roth IRA (GREAT for dividend capture):
• Roth IRA Investing Exp...
Get started with dividend capture investing on Robinhood or M1 Finance:
Robinhood: join.robinhood.com/tylerm27 (Get a free stock up to $500!)
M1 Finance: m1.finance/apNm3hKCZsWC (Get $10 free!)
Interested in camera stuff? Here's the equipment I use to shoot my videos:
amzn.to/3jE8Ktp
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The #DividendCapture strategy is tempting, giving the opportunity to collect dividends every single day. But, despite being incredibly simple, it might not be a worthwhile investment strategy. For the love of #Dividends, I wanted to give this strategy a closer look.
The dividend capture strategy all begins with the ex-dividend date. The dividend capture strategy theory is pretty straightforward: buy a stock before the #ExDividend date. Then, sell it on or after the ex-dividend date, once you've locked in the dividend.
I give many examples in this video because it's crucial to understand the ex-dividend. You have to make sure you are holding the stock at market close before the ex-dividend date. Companies use this date to take record of their shareholders and distribute dividends accordingly. Once this has happened, you can sell your stock and move onto the next one.
So why isn't everyone doing the dividend capture strategy for passive dividend income? Well, that's because there are a handful of variables that make this strategy difficult to profit from. You have to consider:
1. Price corrections after dividend payout - stemming from the "dividend irrelevance" theory, this suggests that markets are perfectly efficient. When a stock pays its dividend, it should drop in price equal to the value of the dividend - leaving investors with a net gain of 0. But, research shows this might not be true in practice!
2. Taxes and costs of trading - With the dividend capture strategy, your dividends will likely be taxed as income. So, your dividend has to be large enough to leave you with a profit after accounting for any loss in share price & any taxes owed on your dividends.
3. Market sentiment on a given day - If the market chooses to move downward on your ex-dividend date, you might be forced to sell at a loss even though the stock would've ordinarily held its value. This risk is always present and near impossible to predict.
Luckily, I've got 4 tips to help you weigh the scales in your favor if you want to try this strategy out!
1. Vet your dividend stocks - look for large-cap stocks that have maintained their value on ex-dividend dates.
2. Use tax-advantaged accounts - Roth IRAs and traditional IRAs can shield you from taxes, widening your margins for trading in and out of stocks and possibly making the difference of profitability with you dividend capture.
3. Target special dividends - special dividends are rare and infrequent, but they are much larger than standard dividends. With bigger yields, there's bigger opportunities for profits with these dividends.
4. Dividend capture with options - buy options contracts to profit when stock prices DO fall on the ex-dividend date. Just beware the added risks and costs involved!
Are you trying the dividend capture strategy? Tell me about your experience in the comments! And make sure to subscribe and stay tuned for my dividend capture strategy results.
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DISCLAIMER: NOT FINANCIAL ADVICE.
The content in this video should not be used as the basis for any investment decision, as it is for entertainment purposes only. Additionally, some of the links contained in this description are affiliate links. I may earn a commission via Amazon, M1 Finance or Robinhood should you choose to purchase or sign up at the links provided.
Well, I feel investors should be focusing on under-the-radar stocks, and considering the current rollercoaster nature of the stock market, Because 35% of my $270k portfolio comprises plummeting stocks that were once revered and I don't know where to go here out of devastation.
@RosaBurks This is considerable! think you could suggest any professional/advisors I can get on the phone with? I'm in dire need of proper portfolio allocation.
@RosaBurks Thanks, I just googled her, and I'm impressed with her credentials. I reached out to her since I need all the assistance I can get.
Who says you have to sell immediately. You can wait until it recovers. This usually happens. I choose what I buy based upon the ex-dividend calendar. I never sell till it recovers and I make a profit. Each time I sell, I reenter before the exdividend date in order to capture that dividend. Some stock I hang on to and keep but mostly I just enter exit and reenter.
Yeah, you certainly don’t have to sell immediately 🤷🏼♂️ I just chose to give that a try to aggressively capture dividends!
What stocks do you rotate between?
@@Goldenvibesss well I stick to companies I am familiar with and that serves me well. I am not getting rich but my little nest egg is growing each month. I go with thing like PG, CVS, KO, Starbucks, WMT, etc.
I started using the capture method but was buying 2 or 3 days before I had to. Then I noticed almost everything I was buying was going up almost all the way to close the day before x-div. I could sell before close and make more then the dividend was going to pay and not risk the drop the next morning.
Nice! No point in passing up the opportunity to lock-in profits!
I have also noticed that a lot of stocks start to run up before the ex dividend date. For now on I am just going to settle for that. It's taking too long for some stocks to recover and if you get stuck with a stock like Cango you are doomed.
@@ValueForInvestors Sure there is... if you anticipate more profit from those same shares.
Yes, this is a valid strategy. The one the video suggests is foolish.
I easily make a profit doing this. And I would much rather pay the full tax rate than working retail for the money. No regrets.
I agree - paying taxes on easy dividends also beats earning nothing at all! 😂
No joke . I'm trying to Webull my way the fuck outta retail myself now..
@@jacklagreca3401 In retail I have had enough of the stupid public. They drive me crazy. And if they ask where an item is I take them to it and on the way they get distracted and I lose them more times than not! I hate people.
@@mysterybuyer3738 I never saw your reply bro. Lmfao. Totally agree tho . Customers suck n blow .
@@mysterybuyer3738 Agree.worked.Sears, Marshall Fields, and H.C. Lytton in Chicago.It is a wonder I didn't go postal.
I've been using the dividend capture strategy for 30 years, so pre-internet and pre-zero commission brokers. Out of thousands of trades, I've never lost money on a dividend capture trade. However, there have been times when I've had to hold on to the underlying for a year or so (which basically turns them into swing trades).
How much have you gained in 30 years? Super curious about that?
This strategy by far pays better than putting your money into 3 month T Bills at 5.5%. On the ex dividend date simply put in a stop-limit sell order and the stock usually regains its price in a couple of days or so. Do this every trading and you'll get a nice little deposit into your cash holding every day. Don't get too greedy because when the market collapses you'll be holding those stocks much longer. I use this strategy for my daily cash balance.
Does it still work?
I didn’t even know this had a term I just thought about doing this and had no idea they drop the stock price to make up for it. I really wanna make money doing this
What do you use for dividend announcements? I am interested in the special dividends and using options like Buy-write covered calls or married puts.
Other than the Benzinga resource in this video, I haven’t poked around much. I haven’t yet experimented further with dividend capture strategies.
I am looking for income. One strategy I'm trying is buying a monthly income ETF. I happened to buy it early on it's ex-dividend day. It pays about 1% monthly. However, I noticed that it went up 2-3% prior to the next ex-dividend. So I sold it prior to the ex-dividend date and lo and behold it briefly dropped back to my previous buy price so I rebought it again early on it's ex-dividend day. It has once again gone up 3% and I have once again sold it prior to ex-dividend. We'll see if I can rebuy it again. Of course, this does tie up the capital but sure increases my "dividend."
Nice! Monthly dividend ETFs are awesome candidates for dividend capture - especially if you can consistently trade around the price action!
how’s this strategy been working so far for you?
Great video thanks a lot...
They recover fast so just hold until recovery!
How fast?
@@Jason92881 just depends but usually within a week
Set "Limit Sell" so once the stock rises back above the previous high you can EXIT with profits.😮💎💰
hey, you and other sources state that the stock price decreases after dividend because people tend to sell it after the gain, but what if I'm the first person to sell the stock after the dividend? wouldn't I sell it at the same price of the previous day (dividend distributed day) closing price?
You have to remember there is a buyer on the other side of the transaction - they must be willing to pay what you are asking to sell for. Paying out a dividend reduces a company's cash and could make them less valuable on paper. Therefore, someone is unlikely to be willing to pay the same amount for a stock after the dividend is paid.
You also have to consider after hours trading and pre-market trading. There are huge institutional investors that will be moving the markets before you even get a chance to place a sell order. With this in mind, it will be difficult to be the first person to try to sell the stock. If everyone else has the same approach (sell the stock as quickly as possible after the ex-dividend date), it would only drive the price down further.
However, I've found that the stock price decreasing is no guarantee - and it can be pretty unpredictable, especially in a bull market. Check out my video on my dividend capture results to see what I mean!
The put options have the price of the dividend baked into the premium for that expiry so you pay a premium for the dividend offestting and negating their use.
Question: If you buy shares 2 days before the ex-div date and sell them the day before the EDD does that qualify?
No - you must hold the shares at market open on the ex-dividend date to receive the dividend. You can sell on the EDD or afterwards.
@@ValueForInvestors So I could buy a stock 1 minute before market close the day before the EDD and receive the div pmt?
@@Billetus yes - just make sure your order is filled lol
If dividend capture worked lots of people would already be doing it and then that would mean the price of the shares would increase to such a level that the strategy wouldnt work.
It worked for me, and many other comments suggest that it’s worked for others too. 🤷🏼♂️
not everybody wants to do the work and take the risk (trading has risk)
This suggests that all strategies are luck
yes my friends, there are lot of ways to make money in the stock market. If you have to find what works for you. Knowledge is key. I agreed with many people who replied you earlier
What are your thoughts on holding a number of "permanent"/long term positions of a lower value and holding through multiple ex div dates. E.g 15 positions of say 5k each. Would this be profitable?
I'm not sure I understand the question... it sounds like you are just holding dividend stocks for the long-term. That's a pretty standard investing strategy 😂
Appreciated
Thanks for the comment Jaideep, glad you enjoyed it! 🙂
I don't know why a lot of people put this strategy down. If you make $1 profit after all costs and tax etc you've made money. Always stay positive.
I use dividends for longer term investing. Buy a good stock before the ex dividend date ava make sure it has a DRP so you get more shares without brokerage costs. And i look for franking credits
example: my ex div date is 12/30, i am suppose to buy stock before 12/30
but my record date is 12/31,
what is record date for?
i can still get my dividend if i sell it before record date?
Record date is when company takes note of its investors to distribute dividends. They use information of stock ownership on the day prior to ex-dividend date. Everything in this video still applies - you can sell on ex-dividend date or after (including record date) and still receive the dividend.
@@ValueForInvestors ty very much for the quick reply.
Am I the only one who just keeps enough cash aside to average down so I can sell out in the green after the dividend? That works, too.
That’s a smart move! Little bit of dividends and a lower cost basis. 😃
That is interesting. I do the dividend captures fine but now you got me thinking about the cost basis. That's brilliant. I might incorporate that into my captures.
That is what I do.
can you give an example of this with fake numbers?
So you're saying you buy the exdate to get the dividend, then when the stock price drops you buy in again, and then after it comes back up you sell? Gain on position + dividend?
I think you have the potential to get 1 million subs , keep on Tyler
Thanks Nassim! Shooting for 1,000 first... baby steps 😂
Great video!! if ya do it in your ROTH's, takes a little while longer but its all tax free, thats what we are doing and just started May last year. cost basis of 28k for 20/21 as we are over 50 so 14k each, sitting on 57k now and hope to be at 100k by the end of the year.
Yeah, the Roth IRA gives you a huge leg up! Unfortunately I can’t do that with my Roth brokerage, so I had to experiment in my taxable account. 🙂
@@ValueForInvestors oh that stinks, not all brokerages are crested equal, that's for sure.
@@johnb1571 What brokerage do you use for you ROTH? and why does it take longer? What's the best way to set up a roth ira for trading?
@@tannerterry8300 I use Vanguard, but you can use whomever you like. The reason it takes longer is because it takes 3 days for funds to settle after each trade. some weeks i can get two trades done but most of the time its just one and i dont sell unless i break even or make a gain. My hope worked out for 2021 I ended the yr with $100k. Now goal is $200k by the end of this 2022, I am at $183k as of Nov 11th.
If I'm getting this correctly, basically it's a pump and dump.
Pumps up right before the ex dividend date. And then dumps on the ex dividend date?
So would it be wise to just sell right before the dividend and miss the dividend but lock in those gains from the pump?
It does seem like in MOST cases, the stock rises leading up to the dividend, then falls on the ex-dividend date. However, when I tested it, this wasn’t always the case.
th-cam.com/video/scYaA4jsAQ0/w-d-xo.html
I think there are certainly ways to play the price action around dividends, but it’s tough to do it with any real certainty.
@@ValueForInvestors what's your opinions on $aabb dividend is may 3rd. It's a penny stock so high volatility. How would you play it? 1 dividend for every 45 shares owned
@@coltenwilhoit I haven't tried dividend capture with any penny stock - I imagine it'd be pretty risky as it could move in any direction. Personally, I'd stick to some of the larger market cap stocks with high trade volume to get more comfortable with the strategy and ensure liquidity whenever I'm ready to trade.
@@ValueForInvestors thanks for the reply.. the reason I'm asking is because I already have a position in aabb.. and I'm wondering how I should play this dividend coming up.. thinking it'll be safer to lock in any gains before the dividend
@@coltenwilhoit In that case, probably depends on your long-term view of the stock! I would identify a price I'm happy to sell and lock in profits at - since it's a penny stock, there's no telling if you'll have the chance to re-enter at a lower price immediately after.
What about holding it for up to a month after? It then has bounced back if not gone higher. So you have both the dividend and capital gain. Does anyone do this successfully? I've seen a paper which shows most do bounce back higher by week 4
I think one problem is that stock can keep down and down and unless history or price show otherwise, It will be devastating unless you intend to keep that stock for investment. My friend bought SQQQ around end of October 2023 for $ 22. Right now it is at $ 13.40. It can keep going down
Good point! I know what that feels like. Although thankfully I had very little in it
Hey Tyler, I have a question about being taxed on the Dividend Capture Strategy. For example, I have one share of Coca-Cola that I’ve been holding for 90 days before the ex-dividend date. The day before the ex-dividend date I purchase 99 shares of Coca-Cola. I now have 100 shares total. On the ex-dividend date I sell 99 shares of Coca-Cola to buy shares in Pepsi before it’s ex-dividend date. Will I still get taxed from Coca-Cola for not following the 60-day rule with the 99 shares? But I have been holding Coca-Cola more than 90 days with one share. Is this a conflict of interest?
Hey! That’s an interesting question. I’m not a tax expert by any means, so please verify me if you plan to try this - but I think you would only get that qualified dividend rate for the 1 share of Coca Cola, while the rest would be taxed at the short term rate since you only held them for a day. I don’t think you can claim to own all the shares for the holding period. 😁
I have been. Mainly in my Roth, and with ETFs like QYLD.
I like the sound of that strategy! Thanks for the comment!
Try with JEPI and XYLD
They mimick the S&P500 and not as volitile as QYLD on post ex dividend day drops
Yeah its a cool strategy! As long as you dont mind holding that stock, just incase it has a massive sell of and your stuck with it
I've run into that problem more than once while trying the strategy out this month 😂 definitely one of the biggest risks with dividend capture!
I like the idea of capturing dividends, and glad you pointed out several of the pitfalls. This only works well in bullish market periods. In your test, I think that you caught one of those bullish months. Stocks often reverse and drop into at least short term down trends on ex-dividend date forcing you to hold longer than you might have intended to recover the pre-dividend market price.
Also, even if you own the shares into the close on day before ex-dividend date, if you have sold a call option against your shares, the holder of that call can exercise the call on the day before ex-div, and they would earn the dividend instead of you.
Agreed! I definitely got lucky with doing this during a bullish month. It’d be interesting to see it during a bearish trend.
That’s a good point about trading options around this - that’s something I need to look into more for dividend capture!
I am not very experienced with options, but if the price can reliably be predicted to fall upon the ex-dividend date durring bearish periods could you use covered puts as a hedge? That way even if you have to wait for the price to go back up you can make a decent return as the stock falls?
Just spitballing
@@K0sm1cKid
Options will help guard against any loss in share price BEYOND the expected dividend drop on ex-dividend date. Selling a call and/or buying puts won't offset the ex-dividend drop because the dividend is built into the price of puts and calls as the date approaches ex-dividend date. I.e., puts increase in price and calls decrease in price as ex-dividend date approaches, anticipating the drop; then on ex-dividend date, puts and calls won't change value to offset the ex-dividend drop. Market makers have priced out any opportunity for arbitrage of the ex-div drop. However, If the shares drop beyond the dividend amount, then the options will adjust in value to offset additional losses beyond the dividend drop. If committed to holding shares long-term, it can be advantageous to use options to protect value of the shares, as the ex-div drops are less impactful over the long-run, especially when considering dividends for total income.
@@HedgeFundOfOne Yeah that makes sense. If it was that obvious everyone would be rolling in dough, or there'd be a crazy bubble as a consequence of the strstegy.
Good stuff man! Very well explained!
Thanks so much! 😄
I am going to experiment with this strategy.
Best of luck Lawrence! Let me know if you come up with any new techniques to improve your returns! 😃
Thanks Tyler. Love the video. I am new to investing. I naively thought I invented this strategy when I saw a potential candidate declaring a good upcoming dividend. I have good savings so I can hold longer than the ex dividend date then sell when shares goes up. I think this strategy will work if you have sufficient funds, willing to hold and or apply to candidates that are performing well and also have a history of not having share price drop on or after ex dividend. One perfect example is nick scali in Aus. They paid a 9.50% dividend on 8 Mar and then have 2.14% increase in stock price a day later.
Nice, there you go! The hard part is identifying those stocks out of all of the options out there. I agree - if you're willing to hold until the stock rebounds, then you have a lot more flexibility in successfully executing the strategy. 🙂
That’s why you have to wait till you get capital gains after record of the dividend.
What do you mean?
How much one should invest ? To get maximize the profit
It’s all percentages - it doesn’t matter how much you use, you’ll earn the same return measured in %. So it’s up to you!
What is a good site for special dividends?
There’s a lot out there! I like the dividend calendar at Benzinga but I’m not sure if it’s the best for special dividends, specifically.
Greetings. @ 12:25 ... I have been searching for said video... I can not differentiate visually... Please help me.(!) ( Thank you.)
...My Dividend Capture Strategy Results( It WORKED!)...( I believe I've located such!)( Yes, no, possibly so? I sure hope so.) FYI, thank you anyway, sorry and or excuse me, possibly.
If you know the stock will drop equal to the dividend payment why not short the stock at market close the day before?
Try it
Well said 👏 how do I get in contact with you sir ?
Thank you! You can leave me a comment here and I will always get back to you. 😀
only works with zero commission platforms - etoro
For sure, commissions would destroy any potential returns!
You need a lot of money just to make anything back on dividends? How much do you usually spend?
You'll make the same % returns regardless of how much money you use. I tested it with $100, you can see my results here: th-cam.com/video/scYaA4jsAQ0/w-d-xo.html
Quality video you deserve way more subs
Thanks Jalen! Slowly but surely, the subs are coming. 😁
Seems the stock price should recover over a short time....btw the music is a big distraction
Only a mater of time before this channel hits 100k subscribers. Very well articulated and very helpful. 10/10
Getting there one subscriber at a time! 🙌🏼 thanks for the comment!
Love it
Thanks Edward! 🍻
Hey Tyler, I like your videos. any interest in doing a collaboration? I'm working on an idea, and I wanted to see if you might be interested in jumping in with us?
Hey Jimmy, likewise! I'd love to collaborate! I've just reached out through the email listed on your channel. 🙂
@@ValueForInvestors Wow savage. Burn~ Jimmy.
Please do a collab if you haven't already
Why don’t you go for stocks that give 8%?
Stocks that pay 8% still only give 2% (if paid quarterly) or .66% (if paid monthly) per dividend capture. If theories about an efficient market are true, stocks can still drop this much on the ex-dividend date and result in 0 profit (or even a loss). I think targeting the higher dividends is a good start, but it’s not a guaranteed win, and there are also fewer opportunities to perform the dividend capture. But if you can make it work consistently, let me know! 🙌🏼
You should look into shorting the stock before ex-dividend date.
Definitely! I’m hoping to experiment with this soon. 😃
@@ValueForInvestors it doesn’t work... if you short the stock you owe the person the dividend, so you pay them
@@vicentecabrera9245 If you're so sure it doesn't work then why did you just tell me to look into it? 😂
@@ValueForInvestors I looked into it... when you short a stock you owe the person you borrowed the shares the dividend.
@@vicentecabrera9245 @valueforinvestors You can short the stock buy selling a call on your shares as an idea
Thinking that dividend capture + covered call sell on the same stock (if option-able & iff holding 100 shares) would work. Taxes are just part of the cost of doing business and should be accounted for accordingly.
Would love to play around with this strategy myself, just not ready to front 100 shares 😅
I’ve look at stocks that got dividend in the past and the haven’t really fallen the much 1-2% I’m wondering why your kind of making it harder then it seems I might be wrong so I would to see what you have to about my comment
How am I making it harder than it seems? A stock falling 1-2% is more than enough to erase your dividend capture!
@@ValueForInvestors aren’t there stocks that give 8%?
@@ValueForInvestors .
will you still be eligible for the dividend if you purchase the stock during After hour the day before the ex date then sell it on the ex date during premarket?
Fake conversations are infesting financial videos. I can spot them within the first few words. And they always have anywhere from 5, 10 to 20 replies advocating some fictional "expert" or "advisor" to help guide you. I always report them. I hope TH-cam is doing something about these stupid Bots.
Y don't u buy in cash n same time sell in future
I’m not sure what you mean 🤔
Be VERY careful with the options strategy. You are hoping for a small gain against a limitless loss when you are selling options.
Dividend hunteing ETFs consistently lose equity over time
I agree that this is often the case, but I don't know how that relates to the dividend capture strategy unless you want to target them for the strategy. 🤔
Why does every video like this have highly annoying repetitive background music? It's very distracting and tiring. Didn't make it through.
conclusion is that it fucking doesn't workd