Dividend Capture Strategy: Understanding Commission Costs

Using the dividend capture strategy with stocks could potentially help you build your portfolio. However, it is not a fool-proof method of investment because one big drawback involves commissions. There are some drawbacks to using this method that you should consider.

Commissions

When you buy and sell stock, you are going to have to pay someone one way or another. If you have a broker, they are going to get their money from each transaction that you make. Even if you use one of the online discount brokers, you will still have some sort of cost involved. 

The dividend capture strategy involves buying a stock shortly before the dividend is issued for stockholders. The ex-dividend date is the date that you have to be a shareholder on to get a dividend payment. After that date passes, you can then sell the stock. 

While this method makes sense, you are doing a lot of transactions. When you trade this often, you will be incurring quite a bit of costs in commissions. Most dividends are not that large and when you have a commission cost to offset it, you will be eating up most of your profits.