The most common idea behind dividend stripping is that the share price drops on the day the dividend is declared by an amount which is similar to but not exactly the same as the dividend. With a strong stock, it’s common for the share price to not reduce by the full amount of the dividend.
The reasoning behind it is quite simple really. On the day a company goes ex-dividend a company’s share price usually falls as the cash to pay the dividend leaves the balance sheet bound for investors’ pockets. In theory, this should “all come out in the wash” as the shares should fall back by the amount paid out in dividend. But this doesn’t always happen – stocks with good momentum often don’t fall by the full amount. So a trader who jumps in, banks the dividend and bails out before the share price “fully settles down” can often make a tidy profit.
So by buying the shares the day before the ex-dividend date, investors can collect the payout and, by selling the following morning, make their return from the difference between the price drop and the dividend. Returns are only in the order of 0.5% so leverage is a must. But with the advent of spread betting private investors can turn that 0.5% into 5% – not bad over a couple of days. If you do a spread trade then instead of buying £10,000 shares you can buy £100,000 and get ten times the return.’
The most common idea behind dividend stripping is that the share price drops on the day the dividend is declared by an amount which is similar to but not exactly the same as the dividend. With a strong stock, it’s common for the share price to not reduce by the full amount of the dividend.
The reasoning behind it is quite simple really. On the day a company goes ex-dividend a company’s share price usually falls as the cash to pay the dividend leaves the balance sheet bound for investors’ pockets. In theory, this should “all come out in the wash” as the shares should fall back by the amount paid out in dividend. But this doesn’t always happen – stocks with good momentum often don’t fall by the full amount. So a trader who jumps in, banks the dividend and bails out before the share price “fully settles down” can often make a tidy profit.
So by buying the shares the day before the ex-dividend date, investors can collect the payout and, by selling the following morning, make their return from the difference between the price drop and the dividend. Returns are only in the order of 0.5% so leverage is a must. But with the advent of spread betting private investors can turn that 0.5% into 5% – not bad over a couple of days. If you do a spread trade then instead of buying £10,000 shares you can buy £100,000 and get ten times the return.’
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