How to Trade Dividends
- 1). Select the stocks that will be traded for dividends. The stocks should have regular, high quarterly dividend distributions. Two to three stocks should be chosen with dividend payment schedules in different months.
- 2). Research and make note of the usual dividend declaration and record dates of each stock. Companies typically declare a dividend a few days to weeks before it is paid and anyone owning the shares on the record date will receive the dividend. The ex-dividend date is two trading days before the record date and shares must be purchased before this date to own them on the record date.
- 3). Study the price changes of the stocks before and after the ex-dividend date. Share prices usually drop by the amount of the dividend on the ex-date then recover to the pre-dividend price. It is important to know how long it typically takes for this price recovery.
- 4). Implement the strategy by buying shares of the selected stocks one or two days before the ex-dividend date and sell them as soon as the share price recovers after the ex-date. You will own the shares for only a few days and be entitled to receive the full dividend.
- 5). Repeat the strategy for each dividend payment of the stocks you have selected. If you are using two stocks, you will collect dividends eight times per year. Three stocks with staggered dividend dates results in 12 dividends collected.
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