What is dividend capture strategy?
The dividend capture strategy is an investment strategy that many traders and short-term investors use to receive dividend that a company pays out. This strategy involves staying invested in a company just long enough till the record date. Once the record date passes, the trader or investor makes an exit by selling the stock.
For executing this strategy, one should keep in mind the following dates.
1. The dividend declaration date: This is the date on which the board of directors of the company declares the dividend.
2. The ex-dividend date: The ex-dividend date of a stock is the day on which the stock begins trading without the subsequent dividend value.
3. The record date: The record date is the date the company uses to determine which of the equity shareholders are eligible to receive the dividend. All of the on-record equity shareholders of the company as on the record date will automatically become eligible to receive the declared dividends from the company.
4. The dividend payment date: This is the date on which the dividend gets credited into the bank accounts of all the eligible equity shareholders of the company. The dividend payment date is always after the record date.
ABC Limited, has declared a dividend on March 02, 2021. The company has notified March 06, 2021 as the record date for determining the eligibility of the dividend-pay out. The ex-dividend date has also been notified to be March 05, 2021. The dividend will be paid out to all the eligible equity shareholders on March 09, 2021.
Dividend Declaration Date- March 02,2021
Record Date- March 06,2021
Ex- Dividend Date- March 05,2021
Dividend Payout Date- March 09,2021
To make use of the dividend capture strategy an investor should buy the shares of the company anytime, after the dividend declaration date of March 02, 2020. However, the investor should exercise a bit of caution and should purchase the shares well before the ex -dividend date.ie. March 05,2021
Once the investor has bought the shares of the company, he or she should hold it till the record date i.e. March 06,2021. After the record date, the investor can make a complete exit by selling the purchased shares of the company. This method will ensure that the investor receives the dividend on the pay-out date.