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Any real negatives to just collecting stock Dividend payouts?

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Any real negatives to just collecting stock Dividend payouts?

Old 11-04-2008, 02:34 PM
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Default Any real negatives to just collecting stock Dividend payouts?

I wonder if there are any real negatives to buying a stock before its ex-dividend date, collecting the dividend, which in many cases are upwards of 10-15%, getting out and repeating? Besides the stock possibly tanking bad and losing the initial investment in the stock which the dividend cannot make up, it seems like it would be an easy way to make some really easy money from month to month.

I have seen the Pattern Day Trader designation but that is about making 5 trades in a week where I'd be doing maybe 2 a week, 3 at the most. I won't mind paying whatever in taxes since it is pretty much free money anyway, right?

This is great, I'd rather ask these kinds of questions on THT than anywhere else, can I trust my fellow boaters?, of course I can.
Old 11-04-2008, 02:44 PM
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Default Re: Any real negatives to just collecting stock Dividend payouts?

While it seems this would work, this would not work over the long term due to no-arbitrage. Also, since a dividend decreases shareholder equity, there is a downside price risk to their payout (especially large dividends). There is a statistical probability of success, but overall I think returns will be slim.

The real way to speculate on this is on earnings and dividend announcements. The stock price moves to reflect these events long before the dividend is paid out. Bottom-line, if you want the income, buy bonds or preferred shares of solid companies.
Old 11-04-2008, 02:53 PM
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Default Re: Any real negatives to just collecting stock Dividend payouts?

You will find that the stock will open ex-dividend the next day so not sure how you will make any money?
Old 11-04-2008, 05:50 PM
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Default Re: Any real negatives to just collecting stock Dividend payouts?

What these guys are trying to say is that when the stock goes ex-dividend, in theory the price goes down by the amount of the dividend. If you think it through, the Company's assets (cash) go down by the amount of the dividend, thus the value is reduced. This is buried in the activity for the day and virtually impossible to account for.

Be careful when looking at high dividend stocks. Many times a company will reduce the dividend without warning and the stock price will take a hit. This has happened with many financial stocks.
Old 11-04-2008, 08:00 PM
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Default Re: Any real negatives to just collecting stock Dividend payouts?

When capital gains goes to 35% in January it'll be impossible to make money in the market...
Old 11-04-2008, 08:30 PM
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Default Re: Any real negatives to just collecting stock Dividend payouts?

You're also trying to time your buys and sells according to a particular company's dividend schedule instead of with market forces. Pick five stocks and follow them for a week and you'll see their intra-day prices fluctuate a whole heck of a lot more than any dividend.
Buy and sell within a day and set a goal of a 1/3% gain and you'll do a whole lot better than timing dividends.
The trick to that is to be able to watch the market throughout the day; something that working full time doesn't allow...

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