If a stock pays dividends every 3 months can you buy it the day b-4 it pays out and get the div & then sell?

Question

If a stock pays dividends every 3 months can you buy it the day b-4 it pays out and get the div & then sell?

Answer 1

You won't be able to buy it and get the dividend right when a dividend will be paid out because you will have to own the stock when the dividend is announced to be able to receive it on the payment date.  (which could be weeks after they announce they are paying the dividend)

However, if you own the stock when they announce they are paying a dividend then you can sell as soon as get your dividend if you'd like.

Answer 2

To get the dividend the last day to buy the stock is the day before the ex-dividend date. So, if the ex-dividend date is Aug 1st, 2008 then the last day to buy the stock and get the dividend is Jul 31st. You can sell the stock the very next day (Aug 1st) and you will still get the dividend.

There's no free lunch in this though. The stock drops by the amount of dividend on the ex-dividend date.

Answer 3

Lots of people have answered and explained the dividend ex-date and date of record, etc.

But, one important point they're missing is the concept of stock value.  Even if you bought the stock ahead of time so you owned it before the dividend was declared and held it though the ex-date, this would be a losing strategy.

If a stock was worth $25 a share and paid out a $1 per share dividend, it reduces the cash on it's balance sheet by $1 for each share outstanding.  All else equal (assuming nothing else happens in the market), the stock price should fall by $1.  In effect, you still have total value of $25, but now own a $24 stock and $1 in cash.  Your total net worth has not changed.  The only difference is now you've paid commission to buy it, and then sell it just a few days later.

Answer 4

NO it doesn't work that way, never has and never will

There are four dates for dividends.

The Declaration Date, the date the company declares the dividend and the related information

The Record Date, the date you must be a registered shareholder in order to get the dividend

The Payable Date, the date the dividend will be paid to the shareholders

The X-Date, The date that is usually three business days before the record date.  This is date is to let all purchase/sells settle and the stockholder record can be produced.   If you buy the stock on this date, or after, you do not get the dividend.  You must own the stock before this date.

Answer 5

I think you meant to ask if such trading scheme can be a money machine? Yes, but only if you could get quite sophisticated.

If you buy a stock before the last dividend cumdate (buy it with dividend) and then sell it on the first dividend exdate (sell it without the dividend) to pocket the dividend, on average after screening out a great deal of volatility a stock price has been seen to go down just the right amount and you should expect to break even after paying the average trader's tax braket for the short term gain.  

The folks out there on the Street seem to be extremely good at math, and everything else (except not having enough patience), so that if there were a systematic opportunity to gain a profit, too many of them would quickly rush in to arbitrage the positions to kill the opportunity.

The arbitration can only be perfect if the market is efficient, that is if everyone has access to the same info and is subject to the same cost for doing the same transaction.  The goverment, however, generates its needed tax revenue primarily by intervening and destroying the efficiency of the free market.  

In this buy cumdate sell exdate scheme, for example, the tax on the dividend creates value difference between certain classes of investors.  The same dividend would net out more if received by a tax-deferred pension fund as compared to a taxable mutual fund.  Certain financial houses that host both versions can, thus, do what called a "swing fund" to systematically exchange the stocks among the internal funds so that the tax free accounts would receive the dividend in exchange for, e.g., a lower management fee on the taxable accounts.

Another more certain systematic gain, if you act fast, is to spot the dogs that failed to bark, that are the stocks that declared but fail to pay the dividend.  Such a stock sends a negative signal that the dog must be very sick and the stock price will start a downward trend that on average has been seen to go down farther than what the fundamentals' standing rationalizes.

Answer 6

No you cannot. It's a smart idea, though, and I know a lot of dividend investors have wished.

You must own the stock on the date that the company says they will be recording for the dividend payouts. They generally call this the "record date" and you'll easily find it under the article dealing with the new dividend payout.

Also, it could hurt you in the long run in terms of commission fees, unless you're pouring lots of money into bouncing around, buying companies previous to their record dates.