Before buying dividends and then selling quickly: Does this dividend strategy work?

According to recent analysis by the Henderson fund company, dividends totaling $ 1.15 trillion were distributed worldwide in 2015 – a full 10 percent increase over the previous year.

Dividend Payouts and Dividend Shares are currently experiencing a boom. The reasons are obvious: The interest rates are at a very low level, so that conventional saving hardly brings any profit. So many investors dodge stocks on dividends, not just speculating on potential price gains, but also targeting annual dividend payments. Because that’s what dividends are about:

Dividends: What’s that?

Dividend is the portion of the profits of a public company that is paid out to shareholders. In Germany, shareholders usually receive these distributions in April and May – ie after the annual general meetings where the amount is decided. Only those who are shareholder of the company on this day are entitled to the dividend payment. In addition, no stock corporation is required to distribute profits to shareholders at all. In principle, a company can do without it or set the dividend to zero after a bad financial year.

Many public companies use dividends to alert investors to their own stock, make them buy and drive up the stock price. The strategy here: Many public companies pay annual dividends that are above the fixed rate.

Dividends: when to buy?

Anyone who wants to invest in dividends as equities immediately faces an important question: when is the right time to buy? If the dividends are distributed to shareholders in April and May, it seems obvious at first sight to buy shortly before the distribution dates to take the warm rain with them. The key date here is the day of the Annual General Meeting on which the dividend amount was decided. Only those who already have the stock in their custody that day will receive the dividend.

Many a freshly baked investor comes up with the idea to buy a stock shortly before the dividend payment, pay the dividend and then immediately sell it again.

Of course, as always on the stock market, making money is not so easy:

As a rule, the price of a share falls on the balance sheet date – namely by the amount that is paid to the shareholders. Therefore, this short-term speculation usually does not work and may even become a minus trade, namely, if payment of dividends on the dividend payment must be paid.

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