Market Overview

The Ins And Outs Of Dividend Capture Strategy

The Ins And Outs Of Dividend Capture Strategy
Related CVX
Ford Earnings Preview: After Last Week's Wall Street Presentation, Not Much New Expected
Benzinga's Bulls & Bears: Amazon, Chevron, Netflix, Snap, And More
Chemung Canal Trust Co Buys Capital One Financial Corp, DowDuPont Inc, Salesforce. ... (GuruFocus)
Related UTX
Putting On The Brakes: Rally Takes Breather As Bond Yields Hit 10-Month High
Benzinga's Top Upgrades, Downgrades For January 8, 2018
Chemung Canal Trust Co Buys Capital One Financial Corp, DowDuPont Inc, Salesforce. ... (GuruFocus)

Investors often think of dividend payments as a somewhat boring long-term advantage to owning certain stocks that have relatively strong cash flow. However, quarterly dividend payments can also provide short-term trading opportunities.

Dividend Capture Strategy

The dividend capture strategy is a trading strategy that involves trading a dividend-paying stock around its ex-dividend date. The ex-dividend date is the date on which an investor must be a shareholder of record in order to receive the upcoming dividend.

Traders who wish to receive the dividend must buy the stock by the end of the trading day prior to the ex-dividend date. They can then sell the stock at any point on the ex-dividend date and still receive the dividend.

Premarket Prep’s Dennis Dick recently discussed how dividend stocks tend to exhibit certain trading patterns in the days surrounding their ex-dividend dates.

“The stocks tend to be strong ahead of the ex-dividend date, they tend to open sometimes a little bit higher on the ex-dividend date than sometimes they should, and then usually they are weak afterward,” Dick explained.

Related Link: How To Read And Trade An Options Alert

These trends are driven by both long and short traders positioning themselves for the dividend.

“You get people that maybe are short and they don’t want to pay the dividend, and so they’ll cover. You also get dividend capture traders,” Dick said.

Together, these two types of traders boost share prices ahead of the ex-dividend date. Despite the fact that a stock’s share price is adjusted downward by the amount of the dividend on the ex-dividend date, buyers tend to step in and buy the stock at the cheaper price. That means many dividend capture traders are able to sell the stock on the ex-dividend date at a smaller loss than the profit they gain from the dividend.

Real-Life Application

The next opportunity to capitalize on the dividend capture trade comes in Tuesday’s session. Chevron Corporation (NYSE: CVX), United Technologies Corporation (NYSE: UTX) and Walgreens Boots Alliance Inc (NASDAQ: WBA) are just three of the many stocks going ex-dividend on Wednesday.

For more trading ideas and insight on day trading, check out PreMarket Prep LIVE every morning from 8–9:30 a.m. ET here. You can also listen to complete episodes on Soundcloud, iTunes and Stitcher.

Do you have ideas for articles/interviews you'd like to see more of on Benzinga? Please email with your best article ideas. One person will be randomly selected to win a $20 Amazon gift card!

Posted-In: Dennis DickLong Ideas Education Dividends Trading Ideas General Best of Benzinga


Related Articles (CVX + UTX)

View Comments and Join the Discussion!