Buying Before the Ex-Dividend Date, and Selling After

Wallet Money Bills Dollar 300x199 Buying Before the Ex Dividend Date, and Selling After

Cashing in on dividends is great, but it’s better to have a longer timeline.

The ex-dividend date is an important date to keep in mind when purchasing a stock, but there are some who like to buy a stock before the ex-dividend date, and sell the stock after to “scoop the dividend.”  Doing this is possible but difficult and some claim to make a profit.

I’m sure a profit can be made, but it will take a lot of effort and I don’t advise this mainly because I have a buy and hold philosophy; but there are other reasons why this is probably not a good idea either:

  • After a stock issues a dividend, the price of the stock generally goes down.
  • You have to risk a large sum of money to make the dividend gains enough to cover any price volatility and trade commissions.
  • When you scoop the dividend you then have a tax liability which you have to pay and account for (short-term capital gains).
  • You run the risk of buying the stock high (security prices go up right before an ex-dividend date) and selling low (the price tends to go down after a dividend is issued). This is a basic accounting truth, but I provide an explanation here.

Why not buy before the ex-dividend date?

With those things in mind, there are quite a few things this dividend will have to cover: brokerage commissions, capital gains taxes, the loss on the price drop, and the time you’ve used chasing the dividend.  After those are accounted for, you must hope there is enough money left to make the effort worth it!

It sounds like a lot of work to me, which is why I don’t do it.  Can profit be made here?  Profit can probably be made, but not enough to attract me.

The Internet Said Dividend Scooping was Good!

You may see a lot of talk online about buying before the ex-dividend date and selling after, and you may see people making a lot of wild claims, but most of those are just wild claims.

People are always searching for the quick buck, but resorting to dividend investing reminiscent of day trading is a quick way to be working extra hard for peanuts.  Stick to regular investing, and wait it out, because any other way is just a classic retelling of “the Tortoise and the Hare.”

Buy dividend stocks for the consistent dividend, and day-trade the stocks worth day-trading.

Updates:

Comments

  1. says

    Any short term investing seems more like gambling than anything else. Gains can be made, money can be lost. I know some people also buy stock a couple weeks before a stock split at prices often times run up during that period too.

    You are right, there are a lot of costs when looking at short term stock investing!

    • says

      We absolutely agree. When you take the stock market and relegate it to the level of casino you are flirting with disaster. There is lots of money made, and lots of money lost this way. It’s a shame because the stock market can generally be a guaranteed income generator if you work it properly.

      Thanks,
      Timothy
      Wealth Artisan Team Member
      http://WealthArtisan.com

    • says

      Hi Artur,

      Yes, when a company finally issues its dividend it is taking an asset (cash) and distributing it to the shareholder. This lowers retained earnings by the amount issued. Generally, you should see the market cap of the company drop by the amount paid out in dividends. Obviously there are a lot of different dynamics at work so it may not work out to the penny, but that is why I said “generally.” If you’d like a source that can confirm this then I did find the below article at Investopedia which is a very respected source for investment information.

      http://www.investopedia.com/articles/stocks/07/dividend_implications.asp

      Thanks,
      Timothy

  2. ptusha says

    My understanding is some part of the price for dividend paying stocks is valued by the dividend cash flow expected and is priced in. Stock price changes when companies change the expected dividend amount.

    So the ex-dividend date , by itself alone, should not really change stock price just like a coupon payment does not change the value of a bond but interest rate changes do.

    If there is an “extra” dip for some stocks on ex-div date it might just be sellers close to ex-div deciding to wait a few days to collect the div and exit. If it is attributed to div payment then most wouldn’t recover this dip soon after or in few days.

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