Apr 10, 2013
Another strategy involves timing the purchase of stock right before the ex-dividend date. A stockholder has to own the stock prior to the closing of this date in order to earn a quarterly dividend, even though the dividend payment does not occur for up to a month later. So if you buy stock the day after ex-date, you will not earn a dividend until three months later.
This brings up an interesting timing strategy that even value investors can employ. For example, if a company has declared a dividend of $2.20 per share, every 100 shares earns $220 per year or $55 per quarter.
If you buy 100 shares before ex-date, you are entitled to that $55. The price per share may dip on ex-date to allow for this benefit, but if you have also qualified the stock as a long-term value investment, it makes sense to time your purchase in this manner.
Timing purchase with ex-dividend date in mind
increases dividend income in the fi rst quarter the position is owned.
Why wait three months before earning your first dividend when you could earn two quarterly dividends in the same time period? This doubles your dividend income in the first three months, just by being aware of the ex-date.
A related strategy is to reinvest dividends in the purchase of additional shares, which creates a compound return rather than a simple return based on dividend yield.
Most brokerage accounts allow you to make this election at the time you purchase shares.
In all market strategies, you will also want to establish clear policies and goals for buying as well as for selling shares of stock. The basic goal of buying should be based on a complete analysis of a company's fundamentals (see Fundamental Analysis ). If you wait for a price dip to buy shares, you are likely to get a short-term bounce on the price, which is a good start to a long-term hold.