Is it possible to buy a stock, receive the dividend, and then sell it?

Question

I am thinking that I couuld research stocks that pay high dividend amounts and then purchase the stock, get paid the dividend, and then sell the stock. I know I would risk losing money if the stock price went down in between buy and sell periods, but I could also hold the stock until the price was at least at the break-even point. Seems too easy so I must be missing something....what is it? Thanks!

Answer 1

It's a good idea, as far as it goes, but here's the catch: on the day the stock goes x-dividend, it will open for trading at a price lower exactly by the amount of the dividend. This is almost a notional phenomenon since within seconds market forces will sweep in and obscure this lowered price.

What if the market forces are negative? What if they are stable? For example, suppose the dividend is $.33, stk goes X on a wednesday, you buy it on tuesday at the closing price of 17.60. On wednesday stk will be lowered, notionally speaking, by .33 to 17.27. In the hours before trading begins, or before early premarket trading begins, the market makers will be matching the buy/sell orders to arrive at the opening price.

If the market is positive, these buy orders would have to push the stk price higher than this amount: [17.27 plus your double commissions plus your carrying costs] for you to make any money at all.

Carrying costs would be interest lost on your principal which would be tied up for at least 24 hours, from the day you bought until the day you would sell, presumably the following day which would be the X-date.

On the other hand, if the market turns negative, you would lose. If this hypothetical stock should drop to 16.98 in the first hour of trading on the X-date, please consider how you'd feel. Not a fun situation.

Experienced option traders, usually pro traders, sometimes do what's called a dividend play. When the number configurations are favorable, they buy and exercise the call option on the day before a stock's X-date, acquire the stock, collect the dividend and sell the stock on the next trading day. They understand exactly what their aggregate carrying costs are and what their risk is.

If this would be occurring in your stock pick, the selling force of the pro option dividend players would contribute to the negative market downdrift in early trading on the X-date.

Surely you don't want to be mixed up in all of this?

Answer 2

These people are completely f-ing stupid. You can buy the stock the day before the ex-dividend date at 3:59 PM and sell it at 9:31 AM the next morning and you will get the dividend. The taxation of the dividend will be the same as if you held the stock for 80 years. However, since everyone in the world knows that the stock was trading with dividend on the purchase day and ex-dividend on the sell date, you can expect that the stock drops by the amount of the dividend. The idea that the stock would be $25 when you bought it and $25 when you sold it is just not true. This is an arbitrage that every precocious 13 year old thinks of. It simply doesn't work and causes you accounting trouble, tax trouble, transactions fees, and takes on uncompensated risk. Totally amateur. Totally dumb.

Answer 3

Yes, it is done every day!! However, what you really mean is "can I get the dividend AND yesterday's price for the stock"? NO!! When a dividend is paid, The price per share (should) decrease by the amount of the dividend. Often it may rise instead.
There is a date called "Ex-Dividend Date" On that day, you will NOT receive the dividend. On the day before that, you will be entitled to the dividend.
What you want is to eat your cake and have it, too. I wish. Remember - "Free lunch ai'nt free".

Answer 4

Some good comments above. Just three points to highlight:

1) You want to sell on the x-div date, not on the payable date. The x-div date is the record date for dividend purposes, and usually preceeds the actual payment by several days. The good news is that you can buy the day before the x-div date, and be eligible for the full dividend the following day.

2) Your dividends will be taxed as ordinary income, rather than as tax-preferenced dividends.

3) Mind your transaction costs. Even if the stock ends up break even across the x-div date, you can lose money on commissions.

Answer 5

It is possible to do what you ask but here are some things to consider: You should decide how much of a yield you want to make on your investment, meaning how much of a profit you want to make i.e., 2%, 5%, 10% and so on. Usually you will need to hold on to the stock for an entire year to get the full yield from the dividend. Your second option of buying a stock, collecting a didvidend and then selling it requires you to sell it at a price that repays the commision that you spend for the buying and selling of the stock and allow you to recoupe the intitial cost of the stock.

Answer 6

Yes...but. When a dividend is paid the stock price is reduced to correspond the the value of the dividend paid. Sorry...not going to work as a get rich quick scheme.

Example. You buy X-Corp at $25 and tomorrow it pays a divident of $1.00/share. The price of X-Corp is now $24.00. (this is, of course, a simplification and does not include other price fluctuations)

The other issue is that it takes generally about one month from the date on which the dividend is issued (DIV-X Date, and you must own the stock on that day to get the dividend), and the Pay Date on the dividend. Which means you have to hold it for about 30 days and are subject to price fluctuations during that time period.

You simply can't buy the stock at $25 the morning it's going to pay a $1.00 divident and then sell it the next day at $25.

Answer 7

Sure, folks do it all the time. Some folks notice that some stocks rise before the dividend cut-off and sell it then, buying it back after the stock drops when ex-dividend. They often make as much on the round-trip of trades as to make more than the dividend--something to consider for your plan. Since some people only buy the stock for the dividend and then dump it, you may lose as much or more from the sale of the stock than the dividend is worth. (The observation makes for some mighty handy potential when trading options, because options holders don't get the dividends, they just trade for the surplus value of the stock over the option striking price)

Answer 8

sure you CAN do it. But can you do it successfully? 1st, you must make sure you buy it correctly so that you get the dividend. You do not buy it the day before & sell the next day. Plus, make sure you calculate your profit for a break even price. Make sure you buy enough shares so you will get a good dividend & be able to cover the comission fees of the buy & sell.

So if you buy company XYZ & you get a dividend of $20 from your shares, even if you break even on your buy & sell price, if you pay $15 comission each way, you still lose $10.

Sounds like a great plan though, just think it out.

Answer 9

You certainly can, there are probably a hundred thousand crafty old timers sitting at their keyboards every day trying to squeeze out an extra ten bucks on that kind of play every day.... but it is not " too easy" as you said.....because of the share-price drop, because of your transaction fee, because the price may flucuate ( beside the div amount)......it becomes a lot of work for miniscule gains. There are lots of better ways to make money. Patience , not get rich quick schemes, always seems to pan out a little better.
But... if you really want to investigate it, go to http://www.investorvillage.com
On the message board lists go to the "D's" and look at the board for "dividend investing"... every so often you'll find 3 or 4 people discussing their latest plan.

Answer 10

It is possible for your idea. Just strike it at a right time. The word is wait. However waiting can be long too. To me high dividend stock usually from the sunset industry. Good luck !