Archive for May 19th, 2010

INVEST IN DIVIDEND PAYING COMPANY Final Part :)

Lots of market participants, who wish for regular income by way of dividends, look for stocks which maintain a steady or an upward trend of dividend declaration.

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Here is a list of few companies.

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Ideally, a low market price when combined with high dividend payout gives high dividend yields. Dividend yield is an uncomplicated tool for investor to evaluate his investments in stocks and to choose the right portfolio depending on his priority.

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Here are two things which will be very helpful for investor:

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Dividend-capture strategy – Investors using a dividend-capture strategy will simply buy the stock prior to the ex-dividend date, and would ensure that they would receive the payment by holding the security until the ex dividend date, and then sell the security. In theory, they should be able to quickly buy and sell a number of securities near their ex dividend dates and capture numerous dividends. However, in practice the truth is that this is not always the case.

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Dividend Arbitrage – It is an options trading strategy that involves purchasing put options and an equivalent amount of underlying stock before the ex-dividend date and then exercising the put after collecting the dividend. When used on a security with low volatility (causing lower options premiums) and a high dividend, dividend arbitrage can create profits, assuming very low to no risk.

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Concluding I would like to say that all investors have mainly two objectives. First is earning from capital appreciation and the second is profits from dividends. And, it is the skill of any stock to offer both these incomes that determine its market price. Investors can increase their returns by investing in dividend-yielding stocks, especially following a continuous stream of dividends. Considering the fact that dividends are tax free, it makes all the more sense to target these stocks.

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