Sometimes us income investors get ‘bored’ while watching our issues tread water–just waiting for our dividends to show up in our accounts.
OR you have so much damned snow on the ground you are too cooped up (like the picture of our deck above)
As long time readers know we don’t advocate ‘trading’ much–we might do a little bit of it from time to time, but mostly we like the “buy, hold and collect dividend” approach.
We also know that there are many readers who think trading has little to do with investing and have quite a disdain for “trading”.
In the end we are for anything one wants to do to make a little extra money–everyone is different.
Personally we always have too much cash sitting in our accounts–anything more than 10% cash is probably too much cash. So when we have time we have a bit of a pastime and that is “dividend capture”. Now everyone probably has their version of “dividend capture” and sometimes it works and sometimes it doesn’t work.
“Dividend capture” as we define it is simple. We look to lock down a dividend payment from a preferred stock or baby bond , by holding shares through the ex-dividend date. If the dividend is 50 cents we look to lock down a net gain of at least 25 cents. This means the total of the capital gain/loss plus the dividend equals at least 25 cents–about 1%.
The definition to us is easy, the execution more difficult. Everyone has their method. Here is what we did in February that worked very well (probably too well–sometimes we mistake luck for genius).
Survey the ex dividend calendar. Find shares in a fairly stable and liquid issue that goes ex-dividend in 10-12 days–preferably with a coupon of at least 6.5% and buy 400-500 shares (enough shares to make it worthwhile). This should be at least a mid level quality issue as we don’t like captures that go bad when a low grade issue puts our a press release announcing trouble during our capture period. Pay attention to the 1st call date as shares either past or near a 1st call date act differently than those with a 1st redemption date 2-3 years out.
Many times an issue will rise into the ex-dividend date as investors jump in to get the dividend. If an issue rises 30 or 40 cents BEFORE the ex date we sell–it is a busted capture but it worked very well. If it rises just 10-20 cents we go ahead and hold into the ex-dividend date and will sell at any point where we can lock down an 25-30 cents profit (capital gain/loss plus the dividend)–hopefully within 20-25 days.
Obviously this doesn’t always work–or everyone would be doing it all day long everyday. Sometimes when the issue is “marked down” on the ex-dividend date it just keeps falling–that is why we want the “tone” of the market to be decent.
Now we only got serious about dividend capture during February after we launched our ex-dividend calendar. I need easy info to mess around with this. If I have to search and search for dates etc I can’t do any of this – just don’t have the time.
We update this calendar all day long so it stays nice and fresh–of course there are issues where the lazy board doesn’t declare the dividends until a week before the ex-date, but mostly they are declared in plenty of time for us.
We added about $700 to profits in February by messing around with this capture. We only tied up about $20,000-$30,000 at any given time fooling around with this.