hi i'm jimmy in this video we're going
to look at some of the features
of dividend stocks as well as some
strategies
uh let's call it do's and don'ts of
dividend investing strategies
now i'm going to use the company
lockheed martin as our real life example
so this video idea actually came from a
question i got
the other day on a on the lockheed
martin stock analysis video that i did
so in that well if you're curious i'll
leave a link to that video in the
description below
but basically what i said in that video
was that i like the company
and that personally i plan on buying the
company by the end of this week
and then i got a comment where they
asked well since the ex-dividend date
was on
friday is that affecting my buying
decision
so do i buy the stock on thursday before
the ex-dividend date or friday
after the ex-dividend date or on the
ex-dividend date and the short answer is
yes kind of this does affect my buying
decision
i'll explain more of that in a second
first just so we're on the same page
well there are four important dates that
we need to know when it comes to owning
a dividend stock
first is known as a declaration date and
this is simply the date
that the company's board of directors
approves a dividend payment for lockheed
martin well lockheed martin issued a
press release
saying that their first quarter dividend
they issued that press release on
january 28th and basically said that
their first quarter dividend is going to
be
two dollars and sixty cents so because
that's a date that they told us about
the dividend well that's the declaration
date now when they announce the dividend
well they have to give us a few other
dates one of them
is known as the record date in this case
well lockheed martin
said that the record date is going to be
monday march 1st
the record date is the date that
investors have to be on record
as owning the stock but because
paperwork can take a bit of time
and it takes time to process payments
make sure the money is available make
sure people actually own the stock
well this means that people must
actually own the dividend stock
a couple days before the record date to
make this a bit more official well they
call this the
ex-dividend date for lockheed martin the
ex-dividend date falls on february 26th
now this may look like a few days but
don't forget we can't count the weekend
these are business days that they care
about
so really the ex-dividend date ends up
being one or two days
before the record date now i've always
heard that it's two days before the
record date
and i think technically this is true
even though this looks like it's only
one day apart one business day apart
but the record date is as of the end of
business on the first
and this is crucial the ex-dividend date
is before the start of business in this
case on
friday and this is crucial to remember
because
we must own a dividend stock before
the ex-dividend date so in this case
before
friday if we own it before the
ex-dividend date well
that means we are eligible to get the
dividend now there are quite a few
interesting trading strategies
that revolve around investing around the
ex-dividend date
but real quick just to touch on the last
important date well that is known as the
pay date
also known as the payment date and as we
might have guessed this is the date that
the company
pays the actual dividend and if you
still are for some reason receiving
checks that's the date that they mail
out the actual checks
but generally the cash a cash dividend
just gets deposited
into your brokerage account so for
lockheed martin
well that they're gonna pay their two
dollars and sixty cents
per share right down here now there's no
required
time difference between the record date
and
the pay date it can vary from company to
company lockheed martin makes it wait
almost a month from when they announce
the dividend almost two months from when
they announce the dividend to when they
actually pay it so there's no hard and
fast rule
okay simple enough now this brings us to
the question
if i know i want to buy lockheed martin
stock do i buy it before the ex dividend
date let's say thursday
or do i buy it on the ex dividend date
in this case
the 26th do i buy it on the 26 which we
know means i will not be eligible to
receive the dividend
now with that in mind there is a
strategy that used to be more popular
than than it is now
it's known as the dividend capture
strategy which basically
means we go around buying dividend
stocks right before the ex-dividend date
and then we sell the stock a few days
later
after we're eligible to receive the
dividend so let's say we sold it we
bought it here and then we sell it down
here the
theory being that the we can collect the
2.60
dividend giving us a huge boost in the
probability
that our stock will do well of course
the stock will also trade by
natural buying and selling of the stock
market but that 260 boost is a nice
boost
but the reason this doesn't really work
in fact it's been proven to be one of
the weaker strategies
is because this two dollars and sixty
cents that lockheed martin's gonna pay
us
well that's gonna we're gonna be
eligible for that if we own it before
the ex-dividend date
well where does that money come from the
most logical answer and
technically the correct answer is that
cash comes from the company
but here's how it actually works let's
pretend lockheed martin is trading at a
hundred dollars per share
right before the ex-dividend they're
trading exactly 100 bucks per share
and then they're going to pay a 2.60
dividend well on the morning of the 26th
which is the ex-dividend date well that
stock trades
excluding the dividend so
in theory the stock would open at let's
say 97 dollars and 40 cents
which is the hundred dollars minus the
2.60 dividend
so if we paid a hundred dollars on the
25th
and then we got a dividend of 2.60 cents
or we could just buy it on the
ex-dividend date
for 97.40 well we end up in about the
same place
now yes this is technically the way it
works but let's pretend that we already
own a few dividend stocks
and let's imagine we've never noticed
that on the ex-dividend date
the stock drops by the dividend amount
well this could happen for a few very
logical reasons
first is the fact that the dividend
stock any dividend stock
doesn't uh the dividend doesn't get paid
in isolation
so on the ex-dividend date well the
shares trade freely
and generally the dividend relative to
the stock price
isn't huge lockheed martin which is
actually trading at about 350 dollars
per share well that stock could easily
move up or down
to three or four dollars without any
problem so it's very possible that a
2.60 dividend
doesn't really get noticed but the real
tricky part here is that when we pull up
the
a price quote for a dividend stock and
for this example i'm actually going to
switch over
to analog devices just because
their ex dividend date is today the day
i'm shooting this video
so analog devices closed yesterday
february 24th
one day before the ex-dividend date at
161.76
and then today i pulled down this quote
from yahoo finance
i pulled it down as we can see at about
10 30 this morning
and we can also see that the stock is
currently
down four dollars and 48 cents so it's
down 4.48 cents
from the previous close but if we do
that math real quick
and we take the close of 161.76
and we subtract the four dollars and 48
cents well we end up with a current
price
of 157 dollars and 28 cents
and we may notice that our recovered
price does not match
the quoted price well as we might have
guessed
if we subtract our calculated price from
the quoted price
we can see we end up with a difference
of 69 cents
anyone want to guess how much today's
dividend was
that's right 69 cents so the point is
the reason a lot of people don't notice
the drop on the ex dividend date
is because it doesn't get accounted for
in the quote
the dividend just gets removed from the
price as if it was never there
so that 4.48 cents 4.48 cents that the
stock is down right now
well that is a result of purely of
trading it has nothing to do with the
dividend so sticking with lockheed
martin as the example
well if the lockheed martin was trading
the day before the ex-dividend date add
a hundred dollars per share
and they're gonna pay their dividend of
two dollars and sixty cents
well the next day let's pretend no
trading happened or very little trading
happen and the stock was breaking even
it would show 97 dollars and 40 cents
no change in the stock price even though
the day before it was 2.60 cents higher
that is because the dividend gets
removed from it and put into your
account
so it's simply a transfer now this
brings us back to
why it doesn't make sense to buy right
before the ex-dividend date
because if i paid you know let's say a
hundred dollars per share they're just
going to give me 260 of it back
now i don't want to make it sound like i
don't think dividends are a good thing
or that there's any real benefit to it
that's absolutely not true many studies
have proven
that more investors prefer dividends
so if more people prefer dividends to
get more people investing in them well
it's more likely that that stock
will move higher plus many many people
live off the dividends that they receive
they build up huge portfolios throughout
their life and perhaps they retire
and they live off the dividends payments
that they're receiving so dividends have
an enormous advantage
i just want to point out where it comes
from now studies have also shown
that more people buy dividend stocks
right before the x date
that way they can get the dividend
they're receiving
what i'm suggesting is that this bias to
buying right before the x date
as opposed to on the x dividend date is
more a lack of understanding from some
investors as to what's actually
happening
on the dividend date now another idea
that some investors get another
investing strategy idea that some
investors get
around dividends is that once we realize
that the stock is going to drop
by a certain price well does it make
sense to
instead of buying the stock on the ex
dividend date well you short the stock
on the ex dividend date if you short the
stock and basically just they're all on
the same page
shorting a stock means that you borrow
the stock from your broker and
essentially you're allowed to sell it
before you buy it so you make a profit
if the stock price goes down and since
we know that the dividend is going to
naturally
move the stock lower well in theory
could be an interesting strategy
to short the stock right before the x uh
right before
the ex dividend date now the short
answer to that question does that work
is no it doesn't work and that is
because
when we short a stock well we as
the seller of that stock are required to
pay the dividend whatever that amount so
for short lockheed martin
when the dividend comes up we have to
pay the 2.60 cents
per share to our broker who will then
pass it on
to whoever they borrowed the shares from
so if we are short the stock well we're
going to have to make sure we have the
cash
on hand to make sure we can pay the
dividend but that's the reason again
that doesn't really work as a strategy
either now this brings us to the
question
do i prefer to buy lockheed martin stock
before or
after the ex-dividend date well frankly
for me either one is fine i'm not too
concerned about it
because i'm a long-term investor and i
plan on reinvesting the dividends
anyways but if i had to choose
which day if if it comes down to it like
it is with lockheed martin i'm
decided i've already decided i'm going
to buy it at the end of this week
and it's either going to be thursday or
friday well which one do i choose
for me i would choose to do it on the
ex-dividend date or after the
ex-dividend date
and that is because dividends generally
get taxed
so we're unless we're in a tax-free
account or we happen to be in a
situation where we're not going to pay
taxes on dividends
well the why pay taxes if we don't have
to
in my mind i'd rather delay those taxes
to when i eventually sell the stock many
many years from now so
that is what i am doing today but if
you're curious
why i waited to buy lmt's stock
well i recently did a video where i go
through my investment portfolio
and some of my rules about when i buy a
stock
after i make a video so if you're
curious perhaps that's a good next video
for you to watch
i got a link right here i got a link in
the description below and thank you so
much for sticking with me all the way to
the end of the video
i really appreciate it thank you and
i'll see in the next video