Can I Buy the Day Before the Dividend and Sell the Day after and Make Money?

Dividends fascinate some investors. Many are looking for a steady long-term source of income. Others, though, are looking for a quick buck. So a common question from the Easy Money crowd is whether you can buy a stock just before the dividend is paid and sell it just after to make a quick profit without investing for the long term. The answer is: Maybe. Here’s how dividends work.

The Three Key Dates for a Dividend

It’s important to understand how dividend payments are made. The company paying the dividend wants to know who to issue the cheques to and for how much before the actual day the cheques are payable. Otherwise they would always be late making the payments.

The Record Date or Date of Record

So the company sets a date to take a snapshot of who owns their stock. This is called the Record Date. A shareholder must officially own their shares on the Record Date to receive the next dividend payment. What makes them “official” owners is whether they have been entered into the books as the owner of those shares.

The Record Date is NOT the date you enter your order to buy a stock and your order is filled.

Settlement Date

When you place an order to buy stock and someone agrees to sell it to you the clock starts ticking towards the Settlement Date. At the start of business on the third day after your request to buy stock was accepted, you become the official owner of the shares.

You’ll see it reported on your Transaction History as the Settlement Date.

The timing of the Settlement Date is standard. It dates back to the days when the paper share certificate had to be physically delivered to the new owner or the new owner’s broker. Getting it out of a safe or safe deposit box and couriering it to the new owner took time. Even now when most share certificates are electronic and can be transmitted instantly, the Settlement Date is still Trading Day plus 3 Business Days, making you the official owner on the third business day. This is sometimes reported as T+3.

For a clearer example,
I put in an order for CGX (Cineplex) on Tuesday, May 28.
The order filled May 28.
The money was taken from my account May 28.
The trade settled on Friday, May 31.
I became the Owner of Record on May 31.

When Is It Too Late to Buy a Stock to Get the Dividend?

As described in an article discussing things to consider before buying a stock, you must purchase a stock BEFORE the Ex-Dividend Date if you want to get the next dividend.

The Ex-Dividend Date is the second business day before the Date of Record. That’s because you have to buy the shares 3 business days before the date you need to be the owner. So the last business day you can buy and get the next dividend is the business day before the Ex-Dividend Date.

Dividend Payment Date

This is the date on the dividend payment cheques.

Where Can I Find These Dates?

The best place to find the Date of Record and Payment Date is on the company’s Investor Relations’ Page. Some websites also show the Ex-Dividend Date but not all of them.
Although most trading screens show the Ex-Dividend Date, most do not show the Payment Date.

So If I Buy Before the Ex-Dividend Date and sell on the Ex-Dividend Date Then I Can Make a Quick Buck, Right?

Companies don’t actually want you to flip their stock. They want investors not speculators. Stock Markets themselves don’t want you to flip either. While they can’t stop the practice, they can try to take the profit out of it.

Say you buy a stock at $50 a share on the business day before the Ex-Dividend date. You sell it on the Ex-Dividend date. The dividend will be $0.50 a share. It’s a pretty stable stock that doesn’t bounce around much, so you assume you can sell it for $50 at the opening of trade.

Very unlikely.

Even though the stock closed at the closing bell at $50, it was immediately adjusted down by the dividend to an Adjusted Close of $49.50.

The stock price will be manually adjusted downwards for the value of the dividend before the next open of the market.

To see an example, look at the price history for Cineplex on ca.finance.yahoo.com

You’ll see on May 28, the stock closed at $34.26. Then further to the right, you’ll see a column of the Adjusted Close which says $34.14. The line above it says: “0.12 Dividend.”
In fact, on May 29, the stock opened at $34.10.

Of course trading will continue to affect the price. Many investors don’t want to buy a stock immediately after it goes Ex-Dividend because they will have to wait over a year (for an annual dividend), or over three months (for a quarterly dividend), or two months (for a monthly dividend) to get paid anything.

Often on the Ex-Dividend date and for several days following the stock will remain flat or fall.

That’s ok, you may think, I’ll wait a few days and when the stock goes up, I’ll sell it and make a profit both on the dividend and on the capital gain.

OK. Or you might sell it and make a capital LOSS that is only partially offset by the dividend. Stocks do not always go up.

Remember you will also have to pay two trading commissions for the buy and sell. That cost can range from about $10 to $60 depending on your brokerage.

If you bought 100 shares of Cineplex at $34.26 with a $10 trading commission on May 28, you’ll need to sell it for at least $34.46 just to break even. Cineplex closed at $34.34, 34.25, 34.06, 34.36, 34.34, and 34.43 for 6 of the next 7 trading days. You could have broken even a few times if you sold on the High, but it would not have been easy or routine.

Why is the Dividend So Small? I Thought They Paid 4% !

Another common mistake made by new investors is mentally calculating the size of the dividend. When they buy the stock, they see a nice 4% yield listed. On a $10 000 purchase, they expect to get $400. But the cheque is only for $100.

For some reason, they don’t check how often the dividend is paid. The 4% is the annual yield.

Many dividends are paid quarterly. That means each dividend payment is 1%, or $100 on $10 000.

If the dividend is paid monthly, the dividend payment is a mere $33.33.

That can be quite a shock to someone paying $29.95 a trade! If they are receiving a monthly dividend, they can’t sell the stock for at least 2 months and even expect to pay back the two trading commissions.

It’s Been 3 Business Days Since I Bought: Where is My Dividend?

Although you must buy shares before the Ex-Dividend date in order to be the shareholder on record on the Record Date, that doesn’t have anything to do with when the dividend will actually be paid.

Some companies, such as Canadian banks, have a Record Date that is a month or so before the payment date.

For example,
BMO goes Ex-Dividend on Tuesday, July 30, 2013.
BMO has a record date of Thursday, August 1, 2013.
The corresponding dividend will be paid August 27, 2013.

In another example, Cineplex pays a monthly dividend.
CGX goes Ex-Dividend on July 29, 2013.
It has a record date of July 31, 2013.
It will pay the corresponding dividend on August 30, 2013.

This last Cineplex example points out another item to watch out for: when I checked the Quote for Cineplex on BMO InvestorLine, it reports the Ex-Dividend date as May 29 today on June 9. This is true because that is the last time it went Ex-Dividend. It will be going Ex again, though near the end of June. For monthly dividend payers, you have to keep an eye on the Record Date on the company’s Investor Relations page if you want to make plans based on when it will next go Ex-Dividend.

So Can You Flip Stocks To Make a Quick Profit Off the Dividend?

Maybe. Your success will have more to do with market volatility, however, than with strategy or common sense.

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Do you try to flip stocks to pluck juicy dividends? Have you ever found you picked a bunch of sour grapes instead? Please share your experiences with a comment.

How to Save your Account Transaction History for a CIBC Investor’s Edge Account

Recently I’ve been organizing and backing up our financial records for posterity. After all, I’m sure after the universities finish poring over Mr. Warren Buffet’s records for inspiration and insights they’ll come knocking on our door. (Not?) One record I find useful to keep on file is our transaction history for our CIBC Investor’s Edge account. This makes it simple to reference when and why money moved in to or out of our trading account. Although we have the same information in other places, I like this format. Here’s how I made a copy of the transaction history in Excel and saved it on a DVD.

How to Save the Transaction History for your CIBC Investor’s Edge Account

  1. Sign on to your account/s.
    1. Go to https://www.investorsedge.cibc.com/ie/index.html
    2. In the User ID field, type your User ID.
    3. In the Password field, type your password.
    4. Click on the Sign On button.
  2. From the link list on the left side of the screen, under Account Information, click on Transaction History.
  3. Click on the custom range tab.
    1. From the From: drop-down lists, select the oldest permitted month, day and year.
    2. From the To: drop-down lists, make sure the most recent permitted date is selected or modify it.
    3. To list the transactions for that period, click on the Search button.

    If you selected a date that is earlier than the available data, the system will correct it to the earliest possible date and reply with the message:
    “Please note: Transaction History can only display transactions as far back as 13 months ago. Your From Date has been changed to the earliest possible date and the results are being displayed accordingly.”

  4. Above the display is a red link titled Download Transactions with a small downward facing arrow beside it. Click on this link.
  5. The Opening Transaction_History.xls window will appear.
    You will be prompted to either

    • Open the file with a spreadsheet program like Microsoft Office Excel; or
    • Save File

    Personally, I prefer to open the file first.

    1. Click to select the radio button beside your preferred choice.
    2. Then click the OK button.
    3. If you chose to open the file, your spreadsheet program will open a window with the data displayed.
  6. You may see some ########## fields. That just means your column is too narrow to display the information. You can click on the narrow vertical line between two columns and pull the column to the right to widen it. You should then see proper values in the cells of that column. Repeat as desired.
  7. After checking the data is what you expect, you can save it.
    1. While holding down the Ctrl key, press S.
    2. You will be warned that you need to give the file a new name to save it. To dismiss the warning, click OK.
    3. In the Save As window
    • In the File Name: field, type a new name for the transaction history file.
    • In the Save as type: field, select the type of file to save it as. For example, I selected Excel Workbook.
    • Click on the Save button.
  8. If you are finished with your Investor’s Edge account, click on the Sign Off link.
  9. For extra security, close your Browser session.

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Do you find the Transaction History is useful when you are reviewing your InvestorLine account? Or do the e-statements meet your needs better? Please share your experiences with a comment.