The dividend capture strategy is an investment technique in which an investor aims to capture a dividend payment by buying a share of stock just before the ex-dividend date and selling shortly after that. The goal is to sell the stock at or above the price they purchased it at, taking the dividend as profit.
In this strategy, you identify a stock scheduled to pay a dividend. Depending on your investment strategy, you might look for stocks trending in the media or are more likely to be undervalued. The investor then purchases the stock before the ex-dividend date. You can receive the upcoming dividend payment by owning the stock on or before the ex-dividend date.
On the ex-dividend date, the stock begins trading without the dividend. The stock price usually adjusts downward on the ex-dividend date to account for the dividend value that will be paid out. This means that the stock price may drop by approximately the dividend amount. However, this price adjustment is only sometimes exact and can be influenced by other market factors, which investors may be able to take advantage of to increase their trade profit.
From the opening bell on the ex-dividend date, the investor looks to identify an opportunity to sell the stock at or above the price they paid. They may continue to look for other stocks that anticipated to pay out a dividend soon and repeat this strategy multiple times.