Author Topic: High dividend stock swapping?  (Read 4275 times)


  • 5 O'Clock Shadow
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High dividend stock swapping?
« on: December 18, 2014, 01:56:59 PM »
Hi everyone,

I'm brand new here, this is my first post. I just found the MMM blog last week, and have been reading it during pretty much all of my free time, and it's totally opened my eyes to what I should be doing! I'm a total investment newbie, and have a lot of research to do, but wanted to pose a quick question. I'm sure there is some reason this isn't going to be a valid strategy to increase wealth, but I will throw it out anyway:

What about an active strategy where you buy very high yield dividend stocks before the in-dividend date, and then sell right after the ex-dividend date to buy another high dividend stock. You would have a bunch of stocks that you rotate through collecting dividends. There is obviously tax to be paid on the dividend itself. Assuming the actual stock price is the same when you buy and sell, does each transaction get taxed as well?

As I said, I'm sure there's a reason why it won't work, just let me know gently!



  • Stubble
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Re: High dividend stock swapping?
« Reply #1 on: December 18, 2014, 02:05:38 PM »
When a company pays out a dividend, that money has to come from somewhere. Namely it comes from the assets of the company. Theoretically the efficient market then recognises that reduction in the value of the company and reduces the share price by exactly the quantum of the dividend payout. Therefore your strategy does not build wealth.


AND unless you're doing this with a lot of money you'd be taking a hit regularly in transaction fees. For instance if you had a $1000 purchase, Sharebuilder, you'd pay $13.90 to get in and get out. If you had a 6% quarterly dividend stock you'd see 1.5%, or $15 in that trade. Would only make $1.10 but also have potentially lost value when the dividend was announced/paid like Cathy said.


  • Handlebar Stache
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Re: High dividend stock swapping?
« Reply #2 on: December 18, 2014, 02:16:42 PM »
Cathy is correct.

More broadly, even if a strategy is technically valid, no idea you can think of will beat the market, because as "a total investment newbie" there are millions of other investors out there who are more-experienced and faster, effectively negating the strategy before you even have a chance to implement it.

In general your time will be much better spent learning how to reduce your expenses or increase your income. Those two factors will have MUCH larger effects on your retirement date than investment strategies will.

And thankfully, investment strategy has already been figured out by tons of smart people, so you don't have to spend any time coming up with your own (though you should spend some time understanding it, and fitting it to your personal situation). In a nutshell: buy and hold low-cost, broad-based index funds.


  • Magnum Stache
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Re: High dividend stock swapping?
« Reply #3 on: December 18, 2014, 02:20:15 PM »
Dividends are not free money.  Your stock values fall by the dividend amount.

If you have $100 worth of stock, and get a $1 dividend, you now have $1 in your pocket and $99 worth of stock.
If you have $100 worth of stock, and you sell $1 worth, you now have $1 in your pocket and $99 worth of stock.

This obviously ignores taxes and transaction fees, but that's the gist.  So trying to bob and weave in and out would be considered a bad idea.


  • 5 O'Clock Shadow
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Re: High dividend stock swapping?
« Reply #4 on: December 22, 2014, 06:02:49 PM »
A friend of mine employs this exact strategy successfully.  He doesn't buy the highest yielding stock, many of those are volatile, but rather blue chip stocks with dividend yields of at least 3%.  Yes, the stock price depreciates after the dividend pays out, but it's a small amount and recovers quickly enough for him to sell out in less than a week with even a small capital gain.  He normally invests around $50,000-$70,000 on one stock so it's not for the faint of heart. 

In 2014 he's been able to collect about $16,000 in dividends and capital gains.  On a $65,000 investment, assuming it's continually invested (which in his case it isn't), that's about a 24% gain.  There are taxes on dividends and capital gains of course but if you do this through a ROTH you avoid those completely.

There are risks with this.  While this could work in a rising market it wouldn't in a falling market.  (Though in a falling market short selling is about the only short term strategy that would work.)  You need to invest enough to capture sufficient dividends to offset the transaction costs which isolates, rather than spreads, your risk.  Also a company, or the market in general, could have drastic news that craters your stock and you might be stuck in a position for years.

My friend has only recently started this strategy so there are no long term results to report.  I'm not recommending this nor would I do it.  My track record of dismal results confirms my suspicions that I possess the rare gift of being able to turn any stock into ether just by purchasing it.  If one could buy gravity, and I did, we'd all fly off the planet.   

Take care,


  • Walrus Stache
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Re: High dividend stock swapping?
« Reply #5 on: December 22, 2014, 06:17:53 PM »
Yes I can concur that this strategy works in a non-volatile market. Did it myself quite successfully for 2 years (yielding around 12%).

Yes stocks do fall by the value of the dividend on ex date. But they have a habit of rising by the value of the dividend in the 3 weeks before the ex date too. I always targeted getting out a couple of cents per share higher than I got in, so that after brokerage I would come out square.

Then 2008 came along and blew up my capital. The strategy has its place, but should be part of a broader strategy, not the only one you utilise.


  • Senior Mustachian
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Re: High dividend stock swapping?
« Reply #6 on: December 22, 2014, 06:50:44 PM »
Never did this - and I am FIRE. Get rich quick schemes are not nearly as good as just saving most of your income. If you save most of your income, you are FIRE in a comparatively short period of time.


  • Handlebar Stache
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Re: High dividend stock swapping?
« Reply #7 on: December 22, 2014, 07:54:25 PM »
For those that really want to do more active strategies, I recommend at least starting with simple, easy to understand stuff that has a track record. Check out Joel Greenblatt's Magic Formula, or Tactical Asset Allocation from Mebane Faber or Gary Antonnacci.

In the end it doesn't matter if a strategy makes money, your own poor psychology and emotions will keep you from performing to your full potential.


  • Bristles
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Re: High dividend stock swapping?
« Reply #8 on: December 22, 2014, 08:06:31 PM »
It's called a "dividend capture" strategy.  If you use that phrase, Google will give you tons of literature along with detailed lists of dividend paying stocks and their ex-dividend dates.

Typically what happens is when a stock goes ex-dividend, the price adjusts downward exactly by the amount of the dividend.  But more than one reply has already suggested that the strategy actually works and there is a "tendency" for the stock price to return to the former level even after the dividend is paid.

One obvious flaw in the strategy is that you are not sufficiently diversified.  This could produce a series -  maybe even a long series - of small profits which are more than offset by an occasional large loss.   The strategy certainly is widely known and watched and practised which should be enough to remove any extraordinary returns.