Dividend Capture Explained

The lure of dividends is always there. Even the novice stock trader notices that certain stocks move down suddenly on their ex-dividend date, and realizes that holders of that stock just received a tidy cash payment. It is no surprise that every trader, perhaps tired of fighting win-one lose-one battles in the volatile high-beta stocks, is eventually tempted to try the slower moving dividend stocks with their predictable payments. But to the trader, a strategy of simply buying and holding is not interesting enough. The trader wants to trade.

This leads to the strategy of Dividend Capture. In this strategy the dividend trader seeks to obtain the full dividend payment while minimizing the time during which the stock must be owned. The dividend stock, like any stock, has a risk of ownership, and the fewer days the stock is owned the lower the risk. The least time is one night -- that is, the stock is bought in the closing minutes of the trading day before the ex-dividend date (the mo-date, or "must-own date"), then sold at the first profitable opportunity, perhaps even early the next morning.

Source: My Happy Trading

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