# Double dipping on blue chip dividends



## RetiredTech (Jan 30, 2014)

I am looking at two blue chip stocks that are paying their dividends quarterly. One company pays to owners of record on the first week of the quarterly month and the other in the last week of the quarterly month. Weighing in the capital gain/loss scenario of exactly when I buy and sell them can I collect the dividends from both companies by being the owner of record on the correct days. Effectively this can double the dividends I could receive. I haven't really noticed the stocks move up in value the day before the owners of record date. Shouldn't that happen? Are there any delays to the owner of record status in a discount broker like CIBC IE ?

What are your opinions on this scenario?

Regards

Brad


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## Xoron (Jun 22, 2010)

RetiredTech said:


> What are your opinions on this scenario?


Forget about it.

Basically, when a company pays out a dividend, the stock price drops to reflect the payout. IE, if the company is worth 100M and pays out a 1M dividend, then effectively the company is worth 99M the day after the payout. In a perfect world, the stock price would drop to reflect the lower evaluation.

Not to mention:
Trading costs
Bid / ask spreads
Overall market movements causing your two stocks to move independently of any underlying reason.


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## wendi1 (Oct 2, 2013)

Forget about it squared. You are attempting "arbitrage", which is typically done by people with enormous bankrolls and bigger computers.


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## atrp2biz (Sep 22, 2010)

This isn't even arbitrage. All things being equal, the stock will just go down by the dividend amount on the ex-dividend date.


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## andrewf (Mar 1, 2010)

It's almost as though yield were a bit of an illusion and that total return is the only thing that mattered. Why stop at 2 companies... you should be able to get as many as 10 different record dates and collect a 50% yield per year. You've cracked the secret to making millions in the stock market!


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## Sherlock (Apr 18, 2010)

You should never double dip a chip http://www.youtube.com/watch?v=RfprRZQxWps


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## tygrus (Mar 13, 2012)

OP, what they tell you is true. If dividend is 6 cents, then opening stock price next day will be 6 cent lower.

Here is what they haven't told you. On companies that pay monthly dividends, the lower stock price can be made up quickly in the next trading days. In addition, if the company you bought is DRIP eligible, then those automatic stock buys kick in after and can support the price level back to where it was pre-dividend. 

You may not be able to exit your position the next day, but within a few days you could. I have done this, but I have also been caught too having to hold something for a week or more to get it back off. I also had to hold a stock for a couple months to get it back off even, but in that time I just collected the dividend and waited patiently.


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## GoldStone (Mar 6, 2011)

tygrus said:


> You may not be able to exit your position the next day, but within a few days you could. I have done this, but I have also been caught too having to hold something for a week or more to get it back off. I also had to hold a stock for a couple months to get it back off even, but in that time *I just collected the dividend and waited patiently*.


You collected the dividends and waited patiently. This is called buy and hold. Why do you have to exit? Buy a diversified portfolio of dividend payers. Collect the dividends and live happily thereafter. What am I missing?


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## tygrus (Mar 13, 2012)

GoldStone said:


> Collect the dividends and live happily thereafter. What am I missing?


Because you can use debt leverage to tap the dividend. You pay for one or two days of interest using your HELOC, grab the dividend, get out, put back the HELOC and do it again. Then deduct the interest on your tax return.


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## Brian Weatherdon CFP (Jan 18, 2011)

Hi RT another issue would be the transaction costs. But somehow another problem creeps in too. Sometimes prices go the wrong way and you're aghast at selling something when it should have been higher....so you wait, and wait, .... Get the picture. So as mentioned above you'll likely be happier with a diversified approach that assures a steady stream of dividends, and you can save yourself the work & worry of trying to squeeze a double-dip. 
Best to you!
BW


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## andrewf (Mar 1, 2010)

On the other hand, your broker will love you. You will be a very profitable client.


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## DivMonster (Feb 27, 2016)

*Hedged Dividend Dipping*

You can actually run through 8-10 companies or so every quarter. The problem is the risk of losing money on the stock sale after the record date. Risk is mitigated by:
1 - Keeping trading costs low (under 0.01% is best)
2 - Buying puts which allow you to recoup the money from the loss in the value of the stock.

If you do this, and you are very precise about compounding and having the right number of options contracts you can do better than average.

The good things about are is that 
1 - You are either in cash or one position. Not much headache.
2 - When you open, you have some time to think about the setup
3 - When you are ready to close, you know your deadline for the next one so you pick your best time to exit 

REITS which pay once a month, etc...


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## andrewf (Mar 1, 2010)

DivMonster said:


> You can actually run through 8-10 companies or so every quarter. The problem is the risk of losing money on the stock sale after the record date. Risk is mitigated by:
> 1 - Keeping trading costs low (under 0.01% is best)
> 2 - Buying puts which allow you to recoup the money from the loss in the value of the stock.
> 
> ...


Puts aren't magic. Buying a put doesn't help if the put loses value.

Show me someone somewhere who manages to use this strategy over any extended period of time to generate superior risk-adjusted returns than the market.


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## tygrus (Mar 13, 2012)

andrewf said:


> Puts aren't magic. Buying a put doesn't help if the put loses value.
> 
> Show me someone somewhere who manages to use this strategy over any extended period of time to generate superior risk-adjusted returns than the market.


I dont know about consistently but it can easily be done a handful of times a year for some extra cash. 

There are other strategies to hedge your risk. On that dividend day companies in that sector are going to be in motion but especially the dividend payer in mind. It will run up a few days prior because there are people doing this, then the next day it will open down the dividend payout. BUT shortly there after the auto drips start buying in which is supportive. There are also dozens of stocks that report on the same day so you can spread your risk over many. They aren't all going to stay down for long.

When I have done this I often buy a position in the index too so I have something to carry me out if it goes wrong.

Also always trade on the thinnest dividend payout and timeframe you can. Easier to make up a 6c payout in a month than a 60c one at the end of the quarter.


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## humble_pie (Jun 7, 2009)

DivMonster said:


> You can actually run through 8-10 companies or so every quarter. The problem is the risk of losing money on the stock sale after the record date. Risk is mitigated by:
> 1 - Keeping trading costs low (under 0.01% is best)
> 2 - Buying puts which allow you to recoup the money from the loss in the value of the stock.
> 
> ...




oh dear, you are believing that you can:

1) buy the stock the day before the X date
2) pay the broker buy commish
3) buy the nearest ATM put
4) pay the broker commish for the put buy
5) collect the dividend overnight to the morning of the X date
6) sell the stock on X date & pay the broker sell commish
7) or else exercise the put & pay the broker exercise commish (this will normally be higher than a straight sell commission)

ie you are planning to harvest No. (5) in return for paying Nos (1) through (4) plus (6) or (7)?

there are pro option traders who occasionally get to do this. What their algos look for is a serious glitch between the share price offers & the put price offers, during the days leading up to X date. They require a glitch that will permit them to get in & out for less than the amount of the dividend.

such glitches do occur but they are extremely rare. A retail option trader has zero hope of ever finding any.

professional traders don't have any commissions to pay, only exchange tickets.

in canadian REITS, the B/A spreads in illiquid options are so huge that a glitch like the above-mentioned will never occur.


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## Davis (Nov 11, 2014)

I would also doubt that this would work because of the price movements, but since all of the data on prices and dividend are available online, why not test your strategy by applying it to the last year of the companies you've selected? You should be able to determine with a bit of effort whether you're strategy would have been profitable if you had applied it before you put money at risk. And, of course, be sure to let your friends at CMF know if it worked.


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## Eclectic12 (Oct 20, 2010)

tygrus said:


> Because you can use debt leverage to tap the dividend.
> 
> You pay for one or two days of interest using your HELOC, grab the dividend, get out, put back the HELOC and do it again. Then deduct the interest on your tax return.


Where the interest is tax deductible ... isn't a larger interest charge better?

I can see where a day or two of interest being important when the interest is not tax deductible (ex. take out $$ from a HeLoc on Feb 27th to make an RRSP contribution then NetFile on say Mar 6th). 

Where the interest is tax deductible, it makes no sense to me to complicate things with the buy/sell/sell to end up with a lower interest cost to deduct.


Cheers


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## Eclectic12 (Oct 20, 2010)

RetiredTech said:


> ... I haven't really noticed the stocks move up in value the day before the owners of record date.
> 
> Shouldn't that happen?


When I have dug into the details of the day before and day of the dividend payment, the day the stock trades without the dividend, it opens a the previous day's close minus the dividend.

The situation is that the dividend is removed from the company value. The trading price is also driven by investor enthusiasm so as long as the enthusiasm and info about the company stay even (i.e. no announcements of laying off thousands or dividend cuts), the opening price should be *lower* as the ex-dividend date is the stock without the dividend (i.e. a drop in value).




RetiredTech said:


> Are there any delays to the owner of record status in a discount broker like CIBC IE ?


The status is what the status is ... if one owns it at close of business that day, one will get the dividend.




RetiredTech said:


> What are your opinions on this scenario?


Question is ... what is investor sentiment going to do to the price after the dividend is paid and then when one has to buy again?
What is happening with stock B?

If both are growing, how do you know that you won't be losing gains as the sell - buy hold, sell - buy hold cycles?
What happens in a large drop or large gain?


Cheers


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## humble_pie (Jun 7, 2009)

Eclectic12 said:


> When I have dug into the details of the day before and day of the dividend payment, the day the stock trades without the dividend, it opens a the previous day's close minus the dividend.
> 
> The situation is that the dividend is removed from the company value. The trading price is also driven by investor enthusiasm so as long as the enthusiasm and info about the company stay even (i.e. no announcements of laying off thousands or dividend cuts), the opening price should be *lower* as the ex-dividend date is the stock without the dividend



like every option trader, i watch X-dividend day trading a lot. There is an absurd notion running around on cmf forum that stocks always open on X-date minus exactly the amount of the previous day's dividend. It's time to put an end to this false notion.

what happens on the X date is that overnight market forces have already swept in & driven the pre-market stock value up or down. Please keep in mind that market price of a stock is *never* equal to a company's treasury book value, which is what records the outgoing dividend payment. Market value of a stock is something else entirely.

prior to exchange opening, the market makers work to reconcile after-hours/premarket/overnight buy/sell orders, in order to arrive at a market bid/ask spread at the opening bell. The dividend amount is already ancient history by 9:30 am.

since james4 & others have recently been insisting so loudly that the market price of every stock *must* decline by the dividend amount as the stock opens for trading on the X date, i've been casually watching. Mostly i've been watching canadian bank stocks. In most cases, the share prices of bmo, ry & td have opened higher on the X date (rising days.) In some cases, they have opened lower by an amount far greater than the amount of the dividend (falling days.)

could we please have an end to this foolish theory. It's medieval theology. Yes, the notional price of a share does decline by the dividend amount on the X date. But this price is notional only. In reality, notional price is completely overridden by market forces hours before any stock opens for trading on X date.


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## agent99 (Sep 11, 2013)

RetiredTech said:


> I am looking at two blue chip stocks that are paying their dividends quarterly. One company pays to owners of record on the first week of the quarterly month and the other in the last week of the quarterly month. Weighing in the capital gain/loss scenario of exactly when I buy and sell them can I collect the dividends from both companies by being the owner of record on the correct days. Effectively this can double the dividends I could receive. I haven't really noticed the stocks move up in value the day before the owners of record date. Shouldn't that happen? Are there any delays to the owner of record status in a discount broker like CIBC IE ?
> 
> What are your opinions on this scenario?


As most have said, in theory this is not a good idea.

Back in the days of income trusts, I did try this for a year or so. In that case, the distributions were paid monthly. But some were about 2 weeks apart. I only used 3 or 4 stocks and had watched them for some time, so had a good feel of their volatility. And this was during a time of fairly stable overall markets. 

I almost never lost money, but it required quite a lot of attention for only modest gains. More just a fun game to play for a while.


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## andrewf (Mar 1, 2010)

humble, I think you're putting up a strawman here. No one is arguing that the share price tends to fall by the amount of the dividend on the ex-div date because of some direct calculation of the treasury of the company. It is arbitraged. The same reason that the value of a bond falls after coupon payments.


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## tygrus (Mar 13, 2012)

Some of these monthly stocks are paying 3 or 4 cents a share. Thats just noise in the share price and the odds of it coming right back even after a day or two are quite high. If it doesn't so what, it will in time, just hold on. 

The advantage of striking at these times is you avoid all the other crazy market swings that affect stocks for no reason. Like oil dragging down everything. Its dine and dash. Give me your divi and I will go watch birds for the rest of the month.

Don't see why this is so frowned upon. Traders are in there every day pillaging little market moves like that.

ps the best is when you get a divi and the stock goes up a day or two later.


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## humble_pie (Jun 7, 2009)

andrewf said:


> humble, I think you're putting up a strawman here. No one is arguing that the share price tends to fall by the amount of the dividend on the ex-div date because of some direct calculation of the treasury of the company.



sorry but i never discussed anything remotely like the above. I was replying to the increasing folkloric noise in cmf forum which goes that the market price of a share will fall, at the exchange opening on the X date, by the amount of a dividend.

what i said is the exact opposite of what you are trying to imply, please don't put words in my mouth. What i said is that the dividend payout affects a company's treasury but the market price of its shares on X date - including the opening price which is the product of hours of order-matching by the market makers - is another animal entirely.

i also quoted a contributor to the noise who posted, just upthread, that "the day the stock trades without the dividend, it opens a [sic] the previous day's close minus the dividend."

james4beach is another who keeps repeating this urban folklore. IMHO it's past time for the nonsense to stop, it's leading novice investors in a totally wrong direction.

tygrus above is more on-the-money when he says Buy-to-get-the-dividend because it's likely your stock will waver to your purchase price soon. The Tyg is especially correct when it comes to a monthly dividend, these are often trading non-events (imho in choosing a time to buy or sell, it's far more helpful to study the technical charts than to fret over a dividend payment.)

agent99 also says he's tried to catch dividends in the past, but he discovered that it was a whole lot of work for little return.

another party either upthread or else in a nearby thread has pointed out - very accurately - that investors like tygrus & agent99, who buy to catch a dividend & then linger around looking for an opportune moment to sell are, in reality, simply short-term traders.

the pro strategy to capture dividends is to utilize options to buy stock, buy put, collect dividend, sell or assign the stock via the put. In reality, there's no chance a retail investor can do this, since the commissions involved are so heavy.


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## peterk (May 16, 2010)

As everyone else has said, OP. This won't work.

However, there is a reason one might want to do this, taxes. If you are in a low to middle income earner or retiree, you likely have a big difference between your dividend tax rate and your capital gain tax rate (the lower your income, the bigger the difference). Converting capital gains to dividends through timed portfolio churning to collect double or triple or more dividends would have you paying a lower tax bill on your investments.

Of course, you'd have to carefully manage your portfolio to make sure you are only churning your positions that are flat, or are in a capital loss position, otherwise you will trigger a capital gain prematurely which will work against you. You also would need to make sure you are following the superficial loss rules carefully and not throwing again any capital losses by accident. 

I'm not sure it would be worth it though. Just as an example:

Say you are a retiree in BC who is making $25,000 from a pension/RRSP, and has a 750k unregistered portfolio that's generating $40,000 in annual investment income. If 20k is from dividends and 20k is from capital gains, your total tax payable will be ~$5,300. If you decide to churn your portfolio twice/year to double your dividends, you'll now be making 40k in dividends and $0 in capital gains. Your tax bill would now be only ~$3,800. For a savings of $1,500. 

However, you're going to have at least a few hundred dollars in broker commissions, plus the lost benefit of deferred capital gains that you ruin by churning your portfolio so frequently, plus the headache of keeping track of everything for your taxes.

This is all very hypothetical though. Like I said, it's assuming your stocks are in a neutral or loss position. If you have a capital gain, especially a significant one, doing this would be foolish just to generate more dividend income.

A more simplified general rule of thumb that might come out of this though would be something like: "If you are low-mid income, and have stock you want to sell with only a small capital gain (or any capital loss) at least wait until your next dividend pays out, then sell."


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## humble_pie (Jun 7, 2009)

peterk said:


> Say you are a retiree in BC who is making $25,000 from a pension/RRSP, and has a 750k unregistered portfolio that's generating $40,000 in annual investment income. If 20k is from dividends and 20k is from capital gains, your total tax payable will be ~$5,300. If you decide to churn your portfolio twice/year to double your dividends, you'll now be making 40k in dividends and $0 in capital gains. Your tax bill would now be only ~$3,800. For a savings of $1,500.



idk, whatever happened to those 20k in capital gains in the 2nd instance?

the way i see monsieur l'exemplaire, he originally had 20k in divs plus 20k as capital gains. He doubled his divs so now he has 40k in divs plus the original 20k in capital gains. His taxes go up, not down.


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## peterk (May 16, 2010)

^ I am assuming the total return remains the same, as I believe it should on average, especially over time.

I know you posted something above that seems to suggest that perhaps it's not such a cut and dry assumption/calculation as all that. But I can't help but think that for ever 1 person who reads your argument against the status-quo and is inspired to question the belief that +$1 dividend = -$1 stock price in all cases, you get 9 others who go "aha! I've found a loophole" and are lead down the path of some cockamamy ideas about cheating the system and free lunches...

If you compare XIU to HXT (the tsx 60 no dividend swap fund - Which I don't particularly claim to understand how it work at all), you see that on average that XIU lags HXT by the amount of the dividend yield distributed. That seems like pretty solid proof to me of the dividend-stock inverse relationship...









What's so bad about the $1 in = $1 out assumption, though? Sure, maybe it's too simplistic, is that what you're arguing? That you can't assume the the stock will be lower by the dividend on the ex-date open? That market forces can override the dividend's effect? That I understand.

But, I mean, you don't actually go about trying to "capture dividends" in your own personal portfolio do you? Has any serious investor ever used this secret knowledge to "double dip dividends" to great wealth? I highly doubt it. It's not passing my smell test. But then again, I'm an amateur, spend my days smelling rocks and dirt mostly, what do I know. :confused2:


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## humble_pie (Jun 7, 2009)

to preach that share prices must fall or even do fall on their dividend X dates by the amount of the dividend is madness. One might as well preach that market share prices must fall by the exact pro-rated amount of the payable, every time the company pays a large bill. One might as well preach that market share prices must rise by the exact pro-rated amount of the receivable, every time the company takes in a receivable.

here an illustration from last friday of how unreal this preaching is. There are billions of examples like this, where a share price rises strongly on its dividend X date. There are also billions of examples where a share price falls on its X date by an amount far in excess of its dividend.

the illustration is ING, a stock i own that went X just last friday 26 february/16.

ING dividend is .3984375, rounding up shall we say .40.

ING had closed thursday 25 february/16 at 11.54. 

if the share-price-drops-by-dividend-amount preachers were correct, ING should have opened the following morning, friday, X dividend at (11.54-.40), or 11.14. Remember, the share-price-droppers preach that share price will open down on the X date by the amount of the dividend.

however, on the following morning, 26 february/16, ING opened X dividend at 11.83, up 29 pennies. If one factors in the 40-cent dividend, ING shares opened on its X date at an adjusted 12.23, which was a very healthy jump indeed.

in effect, a dividend payment that looms overnight because a stock is going X the next day, is only one of hundreds of thousands of overnight news nano-particles that batter & bombard share prices around the clock.


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## peterk (May 16, 2010)

humble_pie said:


> here an illustration from last friday of how unreal this preaching is. There are billions of examples like this, where a share price rises strongly on its dividend X date. There are also billions of examples where a share price falls on its X date by an amount far in excess of its dividend.
> ...
> in effect, a dividend payment that looms overnight because a stock is going X the next day, is only one of hundreds of thousands of overnight news nano-particles that batter & bombard share prices around the clock.


Of course. But who has been preaching that the share price *must and always *falls exactly by the dividend amount though? I don't recall anyone, not J4B certainly. Yes a few people have said those words without the disclaimer *all else being equal*, but among intelligent conversation I thought that was easily assumed... is that what you object to?

I also recall someone (maybe J4B?) proposing doing the exercise that if you were to take the ex-date opening price minus the day-before closing price, for a large number of stocks, over a period of many quarters, you would on average get a number that is lower by the amount of the dividends. It would be nice to see the results of that exercise. Although I think that the XIU/HXT comparison I posted above is exactly that (just in reverse).

You yourself say that the dividend payment is one of the many thousand factors that go into the overnight news, but then you changed my above example to say that you think the hypothetical double dipper would now get $20k+20k in dividends, plus still keep their original $20k capital gains... No, I think on average, if they take an extra 20k in dividends out, then they also lose an extra 20k in capital gains, on average.

I'd like to understand where you're going with this HP, as you are very smart, perhaps there's something I'm missing... But all my understanding and logic and math is not picking up what you're putting down.


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