The Weekly Investment

Dividend Investing

Dividend Capture

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Because of my newfound interest in dividends, by the beginning of 2015 I was seeking to learn more information about dividend investing.  By researching I discovered an investment technique called “dividend capture”.  The technique involves purchasing a stock before its ex dividend date and selling it after receiving the dividend payout, usually a month after the ex dividend date.  In theory, a profit is earned by capturing the dividend.  Dividends can be captured weekly, or even daily, and become a source of passive income.  I liked the idea of marking the payout dates on my calendar because it is a visual reminder that I will receive multiple paychecks throughout the week.

I was able to immediately start dividend investing because most of my income was saved in savings accounts.  The bulk of my income was not in a 401k or 403b because I wanted to keep my income freed up in hopes of someday purchasing a home in full with cash.

On March 16, 2015 I purchased my first stock in my attempt to test the profit earnings of dividend capture.  I would purchase the stock before the ex dividend date and sell after the dividend was received.  I ended up purchasing a stock called White Horse Financial because it had a yield of 9.5%.  I spent $990.89, $12.77 per share, including a $7.95 commission, and waited to see if I could come out ahead.

WHF’s stock price dropped below my purchase price on the ex dividend date.  I was aware that this would happen through my research; the company adjusts the stock price downward to pay the dividend.  I wondered if the stock price would meet or exceed my original purchase price of 12.77 per share immediately after the dividend was paid out?

The dividend payout occurred on April 3, 2015.   The dividend was $7.34.  WHF’s stock price on April 6, 2015 was $12.67.  If I had sold at that time I would have received $967.64, this value includes the $7.95 selling commission.  If I had sold I would have sold at a loss of $23.25.  Selling at a loss was unacceptable.  I realized I could have held onto the stock until the price increased above $12.77 per share but did not want to hold onto the stock since holding onto it would tie up the money that I could be placing into fresh stocks with imminent ex dividend dates.

What I learned through my experiment with dividend capture:

#1  Commissions eat away at the profit that could be earned through dividend capture.  In my case the commissions alone cost $15.90.

#2  The stock price falls on the ex dividend date.  The price drop  will prolong selling the stock for a couple of months.  This delay disrupts the technique since holding onto capital diminishes the purchase of new stocks to fuel the next cycle of dividend payouts.

#3  I realized I could just hold onto the stock and avoid a second commission and receive the next quarter’s dividend payout…

I did not sell the stock and still have it to this day.  I was beginning to doubt the profitability of dividend capture but my enthusiasm about dividends did not wane.   I was continuing to research and was not deterred but still had more to learn.

 

 

Author: weeklyinvestment

Hi I am 43 years old and started dividend investing in 2015 at the age of 41. This blog provides an example of portfolio changes and dividend growth and compounding. It is very exciting to witness the changes on a weekly basis. My goal is to partially retire within the next three to five years by living frugally and building up my portfolio into a mini pension to supplement and support my frugal lifestyle. I am interested in vegan food, biking, music, exercise, nature, photography, gardening, writing, travel, and investing. I daily wish to be able to have more time to do these things yet I am sadly torn away as I head off to work each day...

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