Get Quick Cash Around Stock Ex-Dividend Date

Not sure if you have seen and understand "ex-dividend date" for dividend paying stocks.  Simply speaking, ex-dividend is a date to define when a stock holder may be entitled to get the next dividend declared. Ex-dividend dates are extremely important in dividend investing, because you must own a stock before its ex-dividend date in order to be eligible to receive its next dividend. However, an investor only needs to own the stock for one day (the record date) to be entitled to receive the dividend payment. If the investor buys before the ex-dividend date, and sells on the ex-dividend date or after, the investor will receive the dividend payment, even if the investor is no longer holding the stock on the dividend paying date that is usually weeks after the ex-dividend date. In theory, the stock price will drop in the same amount as the dividend on its ex-dividend date but in reality, for most stocks with a single digit yield, stock price may not decline or even increase due to other factors. With this understanding, do you know by a simple strategy you may get some quick cash by trading around the ex-dividend date?

Let's take Microsoft (MSFT) as an example. Here is the notification I saw in my trading account associated with the MSFT quote:  On 11/28/12, MSFT announced a regular quarterly cash dividend of $0.23 per share, payable on 3/14/13 to shareholders, with an ex-dividend date of 2/19/13. It means you have to buy MSFT stocks before the ex-dividend date of Feb 19 in order to be eligible for getting the next dividend of $0.23 per share, even if you just own the stock for one or a few days, i.e. if you immediately sell the shares on or after Feb 19. Let's say, you buy MSFT 1000 shares on Feb 15, one trading day before Feb 19. Most of the day on Feb 15, you may get a price below $28/share. If you don't want to own MSFT and sell it the next trading day on Feb 19, you can sell it around $28/share. So by holding MSFT just one day, you can get its dividend of  $230 on Mar 14. Much better than any interest you may get from your bank, right? If you are savvy about options, you may do much better than this. For example, by continuing to hold MSFT for one more month and sell its March $28 call options, you can immediately get $470 (based on the call option price on Feb 19 as below). In other words, with a little bit work, you may get $700 in one month without much risk.

MSFT Mar 2013 28.000 call (MSFT130316C00028000)

0.47 +0.09

Of course, this strategy should only be used for good companies which you don't mind to hold. It would be best when the company stocks are trading at a good valuation, e.g. a low P/E ratio like MSFT or INTC at the moment. If you like this idea, there is one opportunity just at the corner for Novartis (NVS). Here is the announcement: On 2/6/13, NVS announced a regular annual cash dividend of $2.53 per share, payable on 4/5/13 to shareholders, with an ex-dividend date of 2/26/13. Basically you only have one day left (next Monday/Feb 25)) to own NVS shares in order to get its dividend. With every 100 shares (~$7000), you can get $253. Please note, NVS has appreciated quite a lot lately and it is not really cheap. No guarantee that NVS will not decline if you want to sell immediately after you buy. But if you don't mind holding it, NVS is a good company and I'm quite comfortable for its long-term valuation. Along the way, you can sell its call options to generate income regularly.