Post by Admin/YBB on Jun 25, 2023 6:38:48 GMT -6
Big Bang big-bang-investors.proboards.com/post/38631/thread
Dividend capture was popularized years ago when Japanese insurers were restricted in using principal and needed portfolio income that was available in the liquid US markets via dividend capture. But the Japanese laws were changed and this distortion in the US markets went away. However, many old references still remain on the web and may give the impression to casual searchers that the technique is more common than it is now.
Obviously, the tax angle is a negative because one is "buying tax liability".
But its use continues from the observed phenomenon that many stocks quickly recover their dividend-related price reductions (by the Exchange on the morning of the ex-div date). There are some explanations for this, including that most investors just watch prices and some T/A followers use actual-prices instead of adjusted-prices. But this dividend-makeup-bounce would benefit both the buyers before and after ex-div, so the tax angle should drive the decision. Most brokers' limit/stop-orders adjust limit/stop-prices by the distributions but also provide the option "Do not reduce" (beware that the order may be executed on the ex-div date morning).
BTW, this phenomenon is NOT observed for mutual funds/OEFs that use only market-close prices; most mutual fund/OEF prospectuses warn about this and recommend purchases after the major ex-distribution dates. The flip side is that selling ahead of ex-distribution date may have tax advantages if dividends are nonqualifying.
Dividend capture was popularized years ago when Japanese insurers were restricted in using principal and needed portfolio income that was available in the liquid US markets via dividend capture. But the Japanese laws were changed and this distortion in the US markets went away. However, many old references still remain on the web and may give the impression to casual searchers that the technique is more common than it is now.
Obviously, the tax angle is a negative because one is "buying tax liability".
But its use continues from the observed phenomenon that many stocks quickly recover their dividend-related price reductions (by the Exchange on the morning of the ex-div date). There are some explanations for this, including that most investors just watch prices and some T/A followers use actual-prices instead of adjusted-prices. But this dividend-makeup-bounce would benefit both the buyers before and after ex-div, so the tax angle should drive the decision. Most brokers' limit/stop-orders adjust limit/stop-prices by the distributions but also provide the option "Do not reduce" (beware that the order may be executed on the ex-div date morning).
BTW, this phenomenon is NOT observed for mutual funds/OEFs that use only market-close prices; most mutual fund/OEF prospectuses warn about this and recommend purchases after the major ex-distribution dates. The flip side is that selling ahead of ex-distribution date may have tax advantages if dividends are nonqualifying.