Can you play with an Ex-Dividend date? Is there a way to make a quick buck out by trading the stock according to when it pays its dividend? Do you believe in elves and hobbits? Okay… maybe some people look like hobbits… so maybe playing with Ex-dividend dates work… Let’s take a look at this trading “strategy”.
How Can You Make Money By Playing The Ex-Dividend Date
So let’s take a look at an example on how you could possibly make money by playing with the ex-dividend date:
Stock X trades at $10 and issues a $1 annual dividend paid quarterly (so $0.25 per quarter). On May 1st, Stock X announces its dividend payout to be distributed on May 25th. In order to receive the dividend, shareholders must own the stock on May 23rd.
May 23rd is the ex-dividend date. Which means that if you purchase your stock on May 24th, you won’t be getting any dividend payout from the previous quarter.
So what happens to the stock on ex-dividend date? Technically, if the market wasn’t playing on the stock and we would just look at the intrinsic value of it, the value should decrease. The shareholder prior to this date will receive a dividend and if you buy it after the ex-dividend date, you won’t get it.
Therefore, some people think that you can play with the ex-dividend date and earn money. Unfortunately, playing with the ex-dividend dates are not as not as simple as this.
Monitoring Ex-Dividend Dates
The first problem you will encounter is tracking the ex-dividend dates. Technically, there are no global sources to find this information as it requires a lot of time to gather all the information together.
On one of my other sites, we monitor the TSX Ex-Dividend Date on a monthly basis. However, these dates are mostly estimates from financial analysts and can be different than the ex-dividend date announced by the company at a later date. As for the US, you can check Dividend Calendar. Here again, you get estimated ex-dividend dates but if you want to track the real one, you would need to follow the company’s press releases.
As you can see, tracking ex-dividend dates for a portfolio of 5 to 10 stocks is not too bad but if you want to follow more than this, you better have a lot of time on your hands!
Playing with the Ex-dividend dates: an Example
I told you I sold RIM last week. I couldn’t stand it poor level of competition and I didn’t forecast any improvement from RIM in the future. This is why I decided to take my loss and walk away. Well I have already made my first move from the proceeds of RIM (I still have one more to make). I will cover my purchase in another article but I will use it as an example since I have purchased ZWB the day prior to the ex-dividend date (it’s a covered call etf… covered what? Yeah I know, I’ll have to cover that as well 😉 ).
So here are the numbers we need:
I bought ZWB on 5-25 2011 at $16.20 and the stock closed at $16.20
The Dividend payout was $0.13 / share
The ex-dividend date was May 26
Range of price during May 26:
Stock Opened at: $15.98
High: $15.98
Low: $15.85
Stock closed at $15.95
What was the play to do with the Ex-dividend date?
Technically, if someone had sold the stock on May 25th at $16.20 and bought it back at $15.92 (median price between $15.98 and $15.85) the next day, he would have “lost” its dividend payout of $0.13 (since he was not a shareholder at the end of the ex-dividend date) but he would have bought the stock $0.28 lower. Therefore, he would have made a profit of $0.15 compared to the option of keeping the stock at the ex-dividend date. That’s a 0.94% yield in one day ($0.15 on $15.92). However, just to offset the transaction cost (let’s put it at a minimum of $5 per trade), you would need to trade 68 shares (so a value of at least $1,082). Over 68 shares, you start making a few bucks.
Playing with Ex-dividend date; is it worth it?
In the light of this example (I know it’s only one stock example on one ex-dividend date), I don’t think it really worth it wasting your time playing the ex-dividend date system. I find too many disadvantages:
a) You need to trade a large volume in order to generate a sustainable profit (would you really make the play on the ex-dividend date just to earn $100? Then you would need to trade a stock with $10,000)
b) The spread in this example is pretty small; which leads to no margin for error. Imagine if there is good news on the stock at the same time of the ex-dividend date and the stock goes up instead of going down?
I would rather keep my dividend stocks than play with the ex-dividend date
What is your take? Do you play with the ex-dividend date? Have you had success with your trading techniques with regards to dividend payouts and ex-dividend dates?
Good article. I guess you would have to do this in a registered account, in view of taxes. Have you ever done this when a major company announces a substantial special dividend? Thanks
The only thing I’ve done, with respect to an ex-dividend date, is to hold my money on the interest paying side of my brokerage account until a couple of days before the ex date, then buy the stock. I’ve had some issues in the past with the stock purchase not being properly recorded when I waited right up till the ex date to buy.
As you say, unless you’re trading rather large volumes of a particular stock, the money to be made tryng to “play” the dates could get eaten up in commisions pretty quickly, in my opinion.
Good post.
To answer the question, nope, I don’t toy around with ex-divi. dates. I really see no point. Maybe that makes me a dull and boring investor?
I would much rather be a keeper than a player. Kinda like a comparing a married guy to a gigolo 🙂
Good article, I’ve often thought about this, but have decided against it for the reasons you cite.
I have, however, become a fan margin purchasing the higher producing dividend stocks currently. Margin borrow at 7-8% and pick a stock such as AGNC, ANH, NLY that are paying over 13% currently. I’ve been doing it for about a year and half now, with gains in both the dividends paid out and a little capital appreciation.
Obviously this requires daily check ups on the 3 stocks to make sure no bad news is coming in regards to the rates changing, but for the next couple of years, it should continue to be an additoinal “kicker” to my dividend funds. I then take that money (after I subtract the monthly margin interest fee) and put it into more tradional dividend stocks. (Pep, WMT, etc). It’s the closest thing to free money besides dividends I have found.
I’ll admit, I’ve thought about this! But in the end I find these as distractions from a well planned investing strategy.
The only time I play with the ex-div date is when I am going to add to my portfolio and I have a choice between 5 stocks that I am picking from, I choose the one that is going to pay the div the soonest.
If one of the stocks just paid a few weeks ago and it is going to be 90 days before they pay again, I will take the one that is paying in the next couple of weeks. That is all things being equal as far as value of the purchase….
I’m with Ed.
I have been following the ex-date calendars religiously for about six months. I buy high yielding stocks that will qualify me for dividends, then sell when I have made money on the stock as well as collecting the dividend. Selling doesn’t always occur after the ex-date. I’ve purchased one stock that has been hovering around the break even point but I haven’t sold it. It (AOD) pays monthly so I not only qualified for one month, but have now qualified several times while I wait for the price to rise so I can sell it.
I’ve had success buying ETFs that have options and pay monthly then combining that with either puts and calls and holding for a few months. It can *really* enhance your return but only when you have some argument for say a sectoral ETF to move in a general direction (like financials after March 2009 🙂 but who can tell the future?) and really this is more of a call writing strategy than dividend capture.
Good article.