A question from a novice investor planning for retirement

Posted By on March 17, 2019

Years ago I thought I could outsmart the market … and in the 1990s when the tide was lifting all boats, I could … but that was before algorithms and computerized trading. I’ve since learned not to continue that dangerous “day-trading game,” at least for the most part. Ex-dividend-dateStill, new investors see a “system” working for a few trades and often stay with it too long … things change.

An acquaintance, with a healthy retirement portfolio, asked me if I owned any dividend stocks … my answer was “yes, that it is a priority.” He questioned, “is there a best time to buy so as not to miss capturing the dividend?”

Again the answer is “yes” since most dividend stocks pay their dividend on a set schedule (often quarterly). But I sensed he was getting at something else … like, “can I buy, capture the dividend and then sell?” Again, the answer is yes, but it is not as simple as he was thinking.

A company’s’ shares, all financial things being equal, generally decrease in value about an equal amount for the dividend they pay out. For example, if a share of XYZ is selling for $100/share pre-ex-dividend date (you must buy before that day to capture the dividend) and pays out quarterly at 4% ($4/share or $1 each quarter), then the share price should and usually does drop about $1. moneymakingcloud_aniIn other words, you can’t really beat the system by buying shares pre-ex-div and then selling a day later. Also, the shares of high dividend paying stocks will often trade UP days/weeks before the ex-dividend day, depending on markets.

My advice is not to bother trying to play that game, but to own a diversified portfolio of dividend paying stock as you enter retirement. Buy good companies, watch them carefully so you’re not stuck when management short term mistakes and arrogance (happens way too often), and be happy collecting dividends. If you are reinvesting or putting money to work (for the long run), pick moments of stock market nervousness when high-quality companies are “on sale.” I personally avoid reinvestment of dividends on or near the ex-dividend date. Management of most regular dividend-paying companies are wisely planning ahead, knowing that the investors who own their company stock will likely hold it a long time … IF they continue having a stable stock price, pay consistently and regularly increase the dividend.


Desultory - des-uhl-tawr-ee, -tohr-ee

  1. lacking in consistency, constancy, or visible order, disconnected; fitful: desultory conversation.
  2. digressing from or unconnected with the main subject; random: a desultory remark.
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