# Dividend Capture Strategy



## ChillbroSwaggins (Feb 18, 2015)

Hey all, new to the forum and investing in general. I was doing some stock dabbling and studying when I can across the Dividend Capture Strategy. I've already studied the basics of it regarding price fluctuations before and after the ex-dividend date, plus I'll be trading exclusively in my TFSA so tax issues should be irrelevant. The one thing I'm curious about is how MER's factor in if I use this strategy on ETF's. My brokerage is offering free ETF trades till March 31st so I want to capitalize on this ASAP, but need a little more information on the MER subject. If anyone also knows about issues with this strategy that I've missed I'd love to hear them.


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## 0xCC (Jan 5, 2012)

The MER is sort of "baked in" to the price of the ETF. It isn't something that you pay out of pocket as an investor. It is basically skimmed off the top of the price of the ETF and an investor won't see it unless they look at the annual reports of the fund.


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## newuser (Sep 16, 2014)

Interesting strategy. Let us know how it goes.


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## gardner (Feb 13, 2014)

A dividend capture strategy is not investing really, but speculation. It would generate a gazillion trades, and done within a TFSA would likely attract the attention of the tax people. If it worked, it would probably wind up generating taxable income, even within a TFSA.


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## gibor365 (Apr 1, 2011)

Doubt it would attract attention of anyone  Nnot number of trades are reported to CRA, but your market value...
so if OP will buy couple of ETFs before ex-div and sell after, or try to buy XIU at 22.28 and sell 20.32 - it's ...the question if he can get sizeable gains....
 So, if he was able to buy CBO on 19th at lowest price 18.78 and sell today at highest 18.80, he would gain 2 cents per share 

I also using CIBC free ETF trade offer to rebalance my portfolio...

and nothing to do with MER, consider ETF like stocks..
btw, Chillbro, what ETFs are you planning to trade? I'd suggest you to buy ETFs that you wouldn' t mind to hold for a long term....and note that if you buy US ETFs , you gonna be carged div withholding tax


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## ChillbroSwaggins (Feb 18, 2015)

0xCC said:


> The MER is sort of "baked in" to the price of the ETF. It isn't something that you pay out of pocket as an investor. It is basically skimmed off the top of the price of the ETF and an investor won't see it unless they look at the annual reports of the fund.


Thanks, I figured it didn't have anything to do with front loaded or back loaded charges but I just wanted to make sure.



gardner said:


> A dividend capture strategy is not investing really, but speculation. It would generate a gazillion trades, and done within a TFSA would likely attract the attention of the tax people. If it worked, it would probably wind up generating taxable income, even within a TFSA.


Unless it was writen in the fine print somewhere I don't recall there being any limit on trades with a TFSA. As it was explained to me EVERYTHING you make in the account is tax free, including dividends/distributions.



gibor said:


> Doubt it would attract attention of anyone  Nnot number of trades are reported to CRA, but your market value...
> so if OP will buy couple of ETFs before ex-div and sell after, or try to buy XIU at 22.28 and sell 20.32 - it's ...the question if he can get sizeable gains....
> So, if he was able to buy CBO on 19th at lowest price 18.78 and sell today at highest 18.80, he would gain 2 cents per share
> 
> ...


Mostly high yield ETF's at this point like HEE and HNY.A, but you're right to say I should look for something I intend to hold as well, just in case the stock dips after the ex-dividend date. Common stock wise I'm eyeing up Nestle since they give an annual dividend in April of $2.42 per share. If I could scoop up a 100 shares of Nestle then it's an easy $242 dividend provided the price doesn't fluctuate too much.


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## yyz (Aug 11, 2013)

ChillbroSwaggins said:


> Unless it was writen in the fine print somewhere I don't recall there being any limit on trades with a TFSA. As it was explained to me EVERYTHING you make in the account is tax free, including dividends/distributions.


You may like to take a peek at this
http://business.financialpost.com/2...-tfsa-being-targetted-by-cra/?__lsa=dcaa-7075


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## gibor365 (Apr 1, 2011)

yyz said:


> You may like to take a peek at this
> http://business.financialpost.com/2...-tfsa-being-targetted-by-cra/?__lsa=dcaa-7075


as per this article


> The CRA has argued that investors who use their TFSAs for frequent trading and earn large gains are effectively running a trading business, and should be taxed on income.


 they write "*and* earn large gains " .. I doubt that OP will have large gains with this strategy....
As far as I know, financial institution require to send XML to CRA at year end.... in this XML there is no tag that have value number of trades.... I think that when CRA will see "large gains" - (don't know what amount they mean, but for sure not couple of thousands), they will start investigation on individual basis and than will check with institutions how many trades investor had....


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## gibor365 (Apr 1, 2011)

> Mostly high yield ETF's at this point like HEE and HNY.A


 I'm not expert with such strategy  , but imho you need to buy ETF with high volume that gap will filled out fast... don't like "covered calls" ETF and wouldn't like to hold it.... don't mind to hold XIU, XIC, ZRE ....


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## dime (Jun 20, 2013)

Seems to me that the stock falls by the exdiv date in the amount proportional the the div yield. So there's really no gain there. 

It would be all about the luck of your timing which is much of what any trading strategy is dependent on.

Investing is about holding over time a good company to reap the rewards. 

When investing I often consider a good time to buy my shares is after it's dropped (after the dividend) so my cost price is lower and I'm confident it will rise over time. 
A capital gain is taxed better than the yield... esp on a US stock.


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## lost in space (Aug 31, 2015)

dime said:


> Seems to me that the stock falls by the exdivdate in the amount proportional the the div yield. So there's really no gain there.
> 
> It would be all about the luck of your timing which is much of what any trading strategy is dependent on.
> .


Agree that is the issue. I spent quite a bit of time calculating if I could do a dividend capture on Dream Global (ex-dividend 27th) and XEI (ex-dividend 31st) the main problem is as you mentioned you have to own the stock on the 27th and on the 28th the price is down. If you're trying to capture the dividend on XEI you have to buy it by the 31st which only gives you two days for the price to recover. 

It could work if you could buy Dream mid month on a dip, sell on the 27th and then buy XEI and wait for the price to recover while hoping at the same time that DRG will drop in price so you can buy it again. Great in theory but not convinced it would work in real life

Update: did some looking around and pretty much every stock drops after it goes ex-div and then recovers a week or two later. So you could do this if had a two stocks which went ex div about two weeks apart or are on different payment dates.


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## Eclectic12 (Oct 20, 2010)

gibor said:


> Doubt it would attract attention of anyone  Nnot number of trades are reported to CRA, but your market value...


The T5008 form does not get reported to CRA by the broker, similar to the T5 and T3?
If it does, my T5008 includes every trade whether it is a buy or a sell for the year.


*Edit:*
I think I needed more caffeine ... the T5008 is only going to apply to a taxable account, not the TFSA.




gibor said:


> btw, Chillbro, what ETFs are you planning to trade? I'd suggest you to buy ETFs that you wouldn' t mind to hold for a long term....and note that if you buy US ETFs , you gonna be carged div withholding tax


Both are good points.


Cheers


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