Dividend Capture Is Tough To Execute

The low interest rate environment has everyone and their dog looking for yield and income, which means a more aggressive version of dividend capture is bound to get more attention. Essentially, it involves constantly rotating between dividend paying stocks with offset dividend payment dates to dramatically increase your yield. I know I sometimes sound like a broken record, but this is another case of “in theory, theory and practice are the same, but in practice they are not.”

There are a number of reasons why this doesn’t work as smoothly as it appears to. Commissions are one big reason. Buying and selling 25 stocks quarterly means 200 trades a year. When you are trading that much you also have to consider the potential capital gains that may drag down your after-tax returns in non-registered accounts. Capital gains might be the least of your worries if you consider that stocks are supposed to drop in price on the open of their ex-dividend dates by the amount of the dividend per share to be paid out.

Source: The Globe and Mail

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