Dividend Stocks for profits

[cashrich]

Dividend Stocks for profits

Here is what I have been thinking -
Step 1 - Buy Dividend Paying stock after the dividend has been paid.
Step 2 - Hold this stock till the next dividend date
Step 3 - Sell the stock after the ex dividend date

two good things here -
1) profit from upside
2) pocket also the dividend

only question remains is what about taxes
- capital gains and dividend income
Any idea how this will affect the PROFITS?

[jpg7n16]

If only the value of the stock didn't fluctuate around, you'd be set.

There is no guarantee that the stock will rise back up once the dividend has been paid. If the stock value falls, then there won't be any profits.

If after a $1 dividend, a $50 stock falls to $45 and then pays another $1 dividend - you still lose a net $4.


And because you're talking about short term holdings, IF you gain anything, it will all be taxed at ordinary income. You won't have any holdings qualify for the Long Term 15% rate.

[cashrich]

Thanks for the reply JPG.

- How about I sell the Stock immediately after Record date. Price would be little less than 50 that day and then wait for a week or so until it falls to 45 and then buy it back.

But as you said If it never hits 50 again then there is a loss. You are right there but I am researching for a cyclical pattern of stocks that trade in that range from 45 to 50 ie 45 is 52 week low and 50 is 52 week high.

"taxed at ordinary income" - could you explain more on this if I made 300$ profit in the above transaction how much taxes?

Thanks for your valuable advice before I jump.

[Slug]

I would just add a caveat that unless you are doing very large transactions, your brokerage commissions could eat into this strategy.

[jpg7n16]

Thanks for the reply JPG.

- How about I sell the Stock immediately after Record date. Price would be little less than 50 that day and then wait for a week or so until it falls to 45 and then buy it back.

That's a pretty big assumption. It's not possible to know today what a price will be tomorrow. You can hope it will be $50 that day, but it's not guaranteed.

If you sell your stock on or after the ex-div date, you will be paid the dividend.

But typically, the price will fall by the amount of the dividend. For instance a stock trading at $51 the day before the ex-div after announcing a $1 dividend - will open on the ex-div date at $50 ($51 - $1).

But as you said If it never hits 50 again then there is a loss. You are right there but I am researching for a cyclical pattern of stocks that trade in that range from 45 to 50 ie 45 is 52 week low and 50 is 52 week high.

Then that stock has been fairly stable, I just want to make sure you knew that there is no such thing as a guaranteed profit with this strategy. You could lose.

"taxed at ordinary income" - could you explain more on this if I made 300$ profit in the above transaction how much taxes?

That depends a great deal on what tax bracket you are in based on your salary and other income, after your deductions.

For a normal middle class income, you'd wind up in the 25% bracket. Meaning that your $300 gain will pay $75 in taxes. But if you are a high income earner, your bracket could be 30%, and you'd pay $90 in taxes. If you are a lower bracket, you may pay only 15% or $45.

For any stock held longer than a year, any gains on stock price are considered long term capital gains. Long term cap gains (LTCG) and dividends are favorably treated by the IRS, so that even if your salary puts you in the 25% or 30% bracket - you'd only pay 15% tax on LTCG. (if you're in the 15% bracket, LTCG are only taxed at 10%)

[cashrich]

now i am thinking to do DCA instead on what i planned to do above...