What Is A Dividend?
A dividend is a distribution of a portion of a company's earnings to a class of its shareholders. Dividends can be in the form of cash, stock, and less commonly, property. Most stable companies offer dividends to shareholders. 3
When is the cutoff to get in for a Dividend?
The trickiest part of dividends is to best understand when the latest possible time to enter the security is. There are several dates that are provided when looking at a stocks dividend: The Declaration Date, The Ex/Effective Date, The Record Date, and The Payment Date.
Declaration Date: The date that the company announced their upcoming dividend.
Ex/Effective Date: The deadline date to own shares to register for the dividend.
Record Date: The date the company uses to determine it's shareholders or "holders on record".
Payment Date: The date a declared dividend is scheduled to be paid. 2
Now what is important to note is that stocks take 3 days to settle. That means you need to buy a stock three days before the record date in order to qualify for the dividend. Further complicating matters, the ex-date falls two trading days before the date by which you need to be a shareholder of record. We've established that the must-own date falls three days before the record date, so simple subtraction means that you must buy a stock one day before it goes ex-dividend. 1
With that in mind, an investor can technically buy a stock at 3:59 p.m. EST on the day before the Ex-div date and sell it at 9:31 a.m. EST the next morning and still receive the dividend in their account. 1
Why Doesn't Everyone Do This?
Now with the way the process was just laid out, you may be asking why everyone doesn't just use this to their advantage. There is a catch. Stocks typically auto-depreciate on the ex-div date by the amount of the dividend. This is done to deter people from abusing this system.
But with careful planning it may be possible to play this system after all.
For this theory, I have gone through the list of every stock that is paying dividends on the week of 10/24-10/28 (The week this was written) and looked into its price action, dividend yield (percentage) past performance during dividend payments, and catalysts such as Earnings Reports that could affect the price of the security. The premise of this theory is to buy 1 stock every day of this week for an overnight hold, hold through the day of the ex-div date (unless a break even opportunity arises), and find a point to sell the next day in order to break even or make profit. (EX: Buy stock Monday, Ex-div is Tuesday, sell the stock on Wednesday) If all goes well, we should be able to profit from 5 different dividend payments on the same $1000 of capital.
The Stocks I'm Choosing For This Experiment
The first stock listed for each day is my main choice, whilst the rest are alternates in case of price action working against me. The stocks are shown on each that would be the last day for entry to be registered for the dividend. Theoretically, if I can play each first choice without taking a loss on any of the positions, it should work out to (based on $1000 invested) $57.11, or 5.71%. Due to the fact that with this experiment I will only be using $1000 and commissions alone would put me in net negative, I will be using Robinhood to execute all trades.
Bonus Objectives:
1. Sell each stock ON the ex-div date so as to reduce the holding time.
2. Sell each stock for a profit to maximize returns
I will be posting the results at the end of the week.
1:https://www.thestreet.com/story/11785758/1/when-must-i-buy-a-stock-to-get-the-dividend.html
2:http://www.investopedia.com/university/introduction-to-dividends/important-terms-to-know-and-other-basics.asp
3:http://www.investopedia.com/university/introduction-to-dividends/
Thank you, appreciate the compliment! As of late, I have been delving into the world of Cryptocurrencies. I think this is the logical next step to go to for trading.
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