My last column, describing seven high-dividend stocks, elicited
questions about the various dates associated with a dividend payment.
Others readers asked about dividend capture strategies, which involve
holding a stock just long enough to collect a dividend, and then
moving on to another dividend-paying stock.
I’ll start with the easy questions, what do the various dividend dates
mean, and then move on to dividend capture.
Dividend Dates
On January 5, Sun Communities, the real estate investment trust that I
mentioned in the article issued a press release saying that its Board
of Directors had declared a quarterly dividend of
$0.63 per share, and that the “dividend
is payable January 25, 2010 to
shareholders of record on January 15, 2010.”
Besides for the dividend amount, that press release included three
dates, the “declaration date,” the “payment date,” and the
“shareholders of record” date.
The declaration date is the date that Sun announced the
dividend, which was January 5.
The payment date (January 25) is the date that the dividend
should be deposited into your brokerage account.
The record date, (January 15) is the day you have to legally
own the shares to collect the dividend. However, there is a three
business-day delay, called the “settlement period,” between the date
that you purchase a stock and when you are the “owner of record.”
Thus, to collect the dividend, you must make your purchase at least
three business days prior to the record date. Thus, you must purchase
by January 12.
The “ex-dividend date,” which is two days prior to the record
date, is the first day that new buyers are not eligible to
receive the dividend. For Sun, the ex-dividend date is January 13.
Yahoo (finance.yahoo.com)
lists the ex-dividend and payable date in its Key Statistics report
for each stock.
Dividend Capture
You only have to be the shareholder of record on one day, January 15,
in the Sun example, to collect the dividend. You don’t have to own it
on the payout date. Thus, you could have purchased Sun shares on
January 12 (one day prior to the ex-dividend date), sold the next day,
and still have collected the dividend on January 25.
In theory, the share price drops by the dividend amount on the
ex-dividend date. But, that doesn’t always happen. Often, the shares
drop by less than the dividend amount. However, for relatively small
dividends, normal day-to-day share price volatility often swamps the
ex-dividend effect.
Still, many investors follow a “dividend capture” strategy
which involves buying a stock before the dividend is paid, holding it
for a predetermined period, and then selling and moving on to the next
dividend stock. In essence, dividend capture is about collecting
(capturing) the dividend and then selling the stock for the same price
or more than you originally paid.
On the theory that it’s the dividend announcement (declaration) that
drives the share price up, some capture strategies involve purchasing
before the announcement. Some investors sell on the day before the
ex-dividend date, others sell on the ex-date, and others wait for a
predetermined period after the ex-dividend date.
Dividend capture strategies are a controversial topic. There is no
consensus that they work. For more on the subject, consult the book,
“Dividend Capture.” by Barbara L. Minton.
One additional note: the relationship between “owners of record” and
“ex-dividend” dates that I’ve described applies to most, but not all
dividends. Different rules apply when a company declares a special
dividend equal to 25% or
more of the share price.
published 1/17/10
