Cautions: Chasing Dividends Can Create Losses
Generally, a company sets their ex-dividend date two days prior to the payment of the dividend. This means that in order to be eligible for a dividend a potential shareholder would need to purchase the shares not less than five business days prior to the dividend payment date. This is because stocks settle at what is called "Tplus3" settlement (cds and other instruments settle in two days).
Chasing dividends can be a dangerous investment strategy, especially in a bear market. If a stock has been steadily rising in price, it could pay off. However, there are factors that must be considered before trying this risky strategy:
Commissions eat up gains - All stock transactions carry fees in the form of commissions that are paid to stock brokers. In addition, there are often other fees associated with trades such as SEC fees or other associated fees;
Some dividends are paid in stock - Some companies elect to pay the shareholder dividends in the form of additional shares. In this case, the shareholder of record would have additional shares that they could liquidate. In this instance, the additional shares of stock may also increase the commissions that needs to be paid;
Dividends are factored into stock prices - When a company declares a dividend, it is not uncommon for the share prices of a company to increase. This increase often reflects the bulk of the dividend. It is not unusual for the share values to drop on the date that the dividend is paid to the shareholders who are entitled to them.
Investing in the stock market requires sound investment advice. It is prudent to contact a responsible investment advisor if you are considering chasing stock dividends as a method of increasing your wealth. This trading tactic can be dangerous and result in unexpected losses.