The Weekly Investment

Dividend Investing


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Dividend Capture

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.

 

 


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Conexant and P&G

20120530_182429I opened my Roth IRA on November 8, 1999 and immediately mailed a check for $2000.00 to Fidelity. Aware that I had opened a new account, I took advice from someone I knew who suggested buying a promising technical stock by the name of Conexant because it was quickly growing in value.

Once the funds were available, I bought 32 shares of Conexant stock at $62.50 per share. The value of the stock quickly rose, I checked my Fidelity account on a daily basis, watching it double, increasing to $4000.00. I was pleasantly surprised to witness my new Roth IRA immediately double.   I did not plan to purchase additional shares because the limit for a Roth at that time was $2000.00 annually.  Believing that investing was easy due to the seemingly easy growth filled me with contentment…but only for a short time.

Unfortunately Conexant’s stock value fell drastically a couple of months later. My investment decreased as fast as it increased and I learned immediately as a beginner that one’s money can quickly vaporize in the stock market. The stock’s value plummeted and I was looking at a loss. By the early 2000’s the stock’s value was in the hundreds of dollars. I lost almost all the money I put into the stock. I never sold Conexant but held on and watched it dip into cents per share as well as branching into two new companies, Mindspeed Technologies and Skyworks.

This was a learning experience and I was relieved that it was only $2000.00. I hoped I could recoup the lost money by the many years of investing that I had ahead of me.  Shortly after opening my Roth someone suggested buying stock in P&G since it’s value dipped to near $50.00 per share.  Because it was a new year I was able to invest another $2000.00 into my Roth. Undeterred, I mailed a second check to Fidelity and bought about 38 shares of P&G. Not long after, I watched the value of my minuscule portfolio return to normal as the value of the P&G stock rose, bringing it near $4000.00, my original investment amount. I was happy to break even and planned to continue to invest in the years to come.