A Day Trader's Approach To Dividends

After a couple of weeks spent retraining for the new market environment we traders find ourselves in, I finally feel like I (and a lot of my students) have a grasp on the type of trading that this kind of market requires. Shifting to smaller price targets and quicker trades has been difficult after months of $1,000, $2,000, $5,000 trades, but there isn’t a better motivator for changing your strategy than a few red days.

With that said, I want to take the time to expand on the ways traders and investors have typically sought quick income or returns in a market like this. Specifically, I want to look at some factors and signals traders should keep in mind when eyeing different dividend stocks or different capture strategies.

Because, not only can dividends be a simple way of adding a little extra fuel to your trading account, but this year promises to be a big one for distributions as companies look to make their balance sheet and equity as appealing as possible. Increases from the likes of 3M Co MMM, Chevron Corporation CVX and Intel Corporation INTC have already set the mood early in the year. I, like most of Wall Street, expect similar increases in the face of incoming tax cuts and potential negative pressure coming from the Fed’s more hawkish interest rate policy.

This past earnings season should be evidence of the trend, with more than 100 large-cap companies announcing dividend increases in January alone. These per-share distributions are generally priced into the stock very quickly as investors buy in before ex-dividend. Still, investors with an interest in immediate payments generally find use for the added funds through a reinvestment strategy.

While increases like these are a strong buy signal for income investors, day traders like myself can benefit from recognizing the stocks that are announcing an increase and building a strategy around similar stocks or sectors. Right now, that can mean paying attention to the remaining earnings reports slated for this quarter and looking to complementary stocks. For instance, Gap Inc GPS, which reports in a week, could be a likely stock for a dividend announcement. 

There are, of course, countless ways of approaching a rising dividend environment, and these are only a few general points of awareness I thought traders might like to consider. As I’ve learned recently, regardless of what your current intraday or long-term strategy might be, it’s critical to be aware of market changes if you want to be profitable.

Disclosure: Warrior Trading is an editorial partner of Benzinga.