Dividend Trading / Scalping / Stripping

This is a discussion on Dividend Trading / Scalping / Stripping within the Trading Journals forums, part of the Reception category; This thread will record my experiment to see if it is possible to profit from short term trading of shares ...

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Old Apr 5, 2014, 7:31pm   #1
 
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Dividend Trading / Scalping / Stripping

This thread will record my experiment to see if it is possible to profit from short term trading of shares to capture the dividends. This is also known as dividend stripping, dividend scalping or dividend capture.

My trading approach is to buy shares late in the trading session prior to them going ex-dividend, then sell them early in trading on the next day, trying to benefit from the fact that I will receive the dividend and the well-known fact the share prices often do not reduce by the full value of the dividend after going dividend.

I am doing this via spread betting account in order to minimise the impact of trading costs and my aim to increase my account by 2% per week. I've taken 4 trades in my first couple of weeks which have all been positive and this has given me the confidence to set up this thread.

I will post more info on how I select possible trades in future post but feel free to share any relevant experience in this area or post any questions you may have.

Thanks,
JH.
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Old Apr 5, 2014, 10:04pm   #2
 
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Originally Posted by aeu97137 View Post
This thread will record my experiment to see if it is possible to profit from short term trading of shares to capture the dividends. This is also known as dividend stripping, dividend scalping or dividend capture.

My trading approach is to buy shares late in the trading session prior to them going ex-dividend, then sell them early in trading on the next day, trying to benefit from the fact that I will receive the dividend and the well-known fact the share prices often do not reduce by the full value of the dividend after going dividend.

I am doing this via spread betting account in order to minimise the impact of trading costs and my aim to increase my account by 2% per week. I've taken 4 trades in my first couple of weeks which have all been positive and this has given me the confidence to set up this thread.

I will post more info on how I select possible trades in future post but feel free to share any relevant experience in this area or post any questions you may have.

Thanks,
JH.
I think you've probably been lucky so far.

If you read the small print you'll find that your SB company only credit your account with 80% of the dividend (some give more) whilst reducing the price by the full 100% amount.
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Old Apr 5, 2014, 10:07pm   #3
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So i understand your idea, you wish to pick up the difference if the share price doesn't fall by the amount of the dividend payment, but you have the spread to cover, plus the general market direction and the fact your holding a short term position over night so your subject to news events which you cannot react to.

Sorry but not for me, but good luck.............
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Old Apr 5, 2014, 10:09pm   #4
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Evening Barjon, i didn't know that, but it's not my line of trading, the concept seems like one i don't fancy.
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Old Apr 5, 2014, 10:57pm   #5
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This was done with some of the top ten stock 's in the XJO index.
Also done on a broker account and not a bookmaker account
Back in 2008/09(bear market) I was shorting stocks before they went ex div.
Paying the div and the drop was bigger than the div paid.

With the current bull market you can buy before they go ex-div and now come back to the price within 1 to 2 days. Do your homework with the companies you are doing it with and should work okay.
i.e looks for stock's with an upward trend, broker recs and reports that the market likes.

Good luck with it.
12

Last edited by 12WBT; Apr 6, 2014 at 2:26am.
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Old Apr 6, 2014, 9:37am   #6
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good luck .............everything is worth a try in this game .......if you dont try you dont learn

N
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Old Apr 6, 2014, 11:50am   #7
 
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As Barjon points out, the main reason this seems to be 'free money' but doesn't work in practice is dividend withholding taxes - you are never credited with the full dividend.

There's been plenty of academic research on it: this is probably the seminal paper.

http://pages.stern.nyu.edu/~eelton/papers/70-feb.pdf

To save you ploughing through it, it basically says that the stock price will fall by the amount for which the typical investor will be indifferent between the stock trading cum- and ex- dividend because of the tax differentials, even if the fundamental value of the company is lower ex-div.
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Old Apr 6, 2014, 12:06pm   #8
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Originally Posted by Jack o'Clubs View Post
As Barjon points out, the main reason this seems to be 'free money' but doesn't work in practice is dividend withholding taxes - you are never credited with the full dividend.
I know Jo'C knows his stuff - as does barjon - so I'm not going to question them - let alone contradict them. (I know, I'm a wimp!) However, what the OP suggests strikes me as being an interesting departing point for a trade. As a means of filtering stocks, it sounds as good as any to me. If s/he is then able to apply some additional TA (or whatever), backed by sound risk management, then s/he might have something, no?

What I'm really trying to say is that what s/he proposes may not be a robust stand alone strategy. By the same token, if he removes this element and just trades the residue of the strat' - then that too may not be viable. But, combining the two may provide him/her with an edge. The whole is greater than the sum of its parts . . .
Tim.
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Last edited by timsk; Apr 6, 2014 at 12:08pm.
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