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.

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…

Click here to continue reading

Want to learn more about how to profit off the stock market? Or maybe you just want to be able to look sophisticated in front of your coworkers when they ask you what you are reading on your Kindle, and you’d prefer to tell them “Oh, I’m just reading a book about stock market analysis,” rather than the usual “Oh, I’m just looking at pics of my ex-girlfriend on Facebook.” For these reasons and more, check out my book, Beating Wall Street with Common Sense. I don’t have a degree in finance; I have a degree in neuroscience. You don’t have to predict what stocks will do if you can predict what traders will do and be one step ahead of them. I made a 400% return in the stock market over five years using only basic principles of psychology and common sense. Beating Wall Street with Common Sense is now available on Amazon, and tradingcommonsense.com is always available on your local internet!