Fortunately, all the information regarding that is declared publicly by the company. Not all companies pay dividends, and the payment schedule varies for each. Now let’s look at how we can use dividend capture as an investment strategy.įirst, we need to find dividend-paying stocks. But, unfortunately, there’s more art to this than science. If there were a fool-proof mathematical model that could figure out the best way to execute a dividend capture strategy, it would be far more popular than it is. The share price can always drop so much that you end up with a loss despite receiving the dividend. As you might have guessed by now, there’s a fair bit of luck involved in the execution. However, you can still be profitable if the price drop is less than the dividend received or if the share price rises above the buying price. The dividend declared was $0.10 per share, and the stock fell by $0.27 on the ex-date, opening at $10.83 and closing at $10.62. Let’s look at a quick example: Op Bancorp (OPBK) pays a quarterly dividend-we will look at its ex-date on 4th August 2021. Stock prices usually drop after the dividend is allocated. Instead, the idea is to hold the shares long enough to become eligible for the dividend and sell them once the company allocates the dividend on the ex-dividend date (more on this in the Dividend Capture Timeline below). In the simplest terms, dividend capturing is an active investing strategy that allows you to receive dividends without taking on the risk of holding the underlying shares for the long term. What is Dividend Capture as an Investment Strategy? 💡
Covered call dividend capture strategy how to#
So, in this article, we will examine how the strategy works, how to use it effectively, and what pitfalls you need to avoid to make a profit. Instead, the income attracts the ordinary income tax rate, which can be significantly higher.Īll in all, dividend capture is not a conventional investment strategy-and it requires some know-how to execute properly. For example, a common criticism of this strategy is taxation, as short-term traders do not get the same favorable tax treatment for dividend income as long-term shareholders. However, in reality, it’s not quite that easy, as a few complexities can make things tricky. If you sell close to the buying price, you can still net a profit with the additional dividend income.
The idea seems relatively straightforward at first-you buy a dividend-paying stock with the singular purpose of receiving the dividend, and you sell those shares as soon as it’s received. Companies like to be consistent with dividend payments, as made evident by the fact that S&P 500 dividend payments hit a new record even during a global pandemic in 2020-which means there’s no shortage of dividends to capture. 🚫įortunately, not all investment strategies have to be complicated.Ī dividend capture strategy helps day traders and short-term investors “capture” dividend payments without holding the underlying stock’s long-term. Johnny stares at candlestick charts all day, trying to spot the next day trading opportunity while his eyesight continues to degrade by the minute.ĭo you want to be like Johnny? Nope – me neither.
Covered call dividend capture strategy full#
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Dividend Capture Strategy (2023): What it is, How it Works ✅ NewsletterĪll reviews, research, news and assessments of any kind on The Tokenist are compiled using a strict editorial review process by our editorial team.
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