Dividend Rollover Plan

A method of buying and selling stocks around their ex-dividend dates to collect the dividend and potentially make a small profit on the trade.
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Overview

What is a Dividend Rollover Plan?

A Dividend Rollover Plan is an investment strategy where an investor buys shares of a company just before the stock’s ex-dividend date to receive the upcoming dividend payment. Following the receipt of the dividend, the investor sells the shares. This strategy allows the investor to capture the dividend income while potentially making a small profit from the trade.

Key Concepts:

  1. Ex-Dividend Date: This is the date on which the stock trades without the value of its next dividend payment. Investors who purchase the stock on or after this date are not eligible for the upcoming dividend.
  2. Dividend Capture: The objective of receiving dividend payments through the timely purchase and sale of dividend-bearing stocks.
  3. Dividend Income: Regular payments made by a corporation to its shareholders, typically in the form of cash or additional stock.

Examples

  1. Example 1:

    • Company ABC declares a dividend with an ex-dividend date of June 10.
    • Investor buys 100 shares of Company ABC on June 9.
    • The investor becomes eligible to receive the dividend.
    • After receiving the dividend, the investor sells the shares on June 11.

  2. Example 2:

    • Investor buys shares of Company XYZ before its ex-dividend date.
    • After the stock goes ex-dividend, the share price typically drops by the dividend amount.
    • The investor sells the shares after the drop, potentially at a higher cost basis, while having secured the dividend payment.

Frequently Asked Questions

1. Is a Dividend Rollover Plan risky?

Yes, there are risks involved, such as market fluctuations that can impact the stock price, transaction costs, and the timing of the purchases and sales.

2. Do all stocks offer dividends?

No, not all stocks offer dividends. Investors should research which companies have a consistent history of dividend payments.

3. How are dividends taxed?

Dividends can be taxed as either qualified or ordinary dividends, with qualified dividends typically facing a lower tax rate.

4. What is the ex-dividend date?

The ex-dividend date is the cutoff date set by the company whereby investors purchasing the stock on or after this date will not receive the upcoming dividend.

5. Do stock prices always drop after the ex-dividend date?

It is common for stock prices to drop by an amount equivalent to the dividend, but market conditions can also influence stock price movements.

  • Dividend Yield: The dividend per share, divided by the price per share, expressed as a percentage.
  • Payout Ratio: The proportion of earnings paid out as dividends to shareholders, typically expressed as a percentage.
  • Dividend Aristocrats: Companies known for consistently increasing their dividend payouts annually for at least 25 consecutive years.
  • Dividend Distribution: The actual payment of a dividend, typically occurring after the record date.

Online References

Suggested Books for Further Studies

  1. “The Single Best Investment: Creating Wealth with Dividend Growth” by Lowell Miller
  2. “Dividends Still Don’t Lie: The Truth About Investing in Blue Chip Stocks and Winning in the Stock Market” by Kelley Wright
  3. “The Ultimate Dividend Playbook: Income, Insight, and Independence for Today’s Investor” by Josh Peters

Fundamentals of Dividend Rollover Plan: Investment Strategies Basics Quiz

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Dividend Tax
Dividend Requirement