How to Buy Stock Right Before a Dividend Pays

Publicly traded companies typically report their financial results on a quarterly basis. If a company has a profitable quarter, its board of directors might choose to pay out a portion of those profits to the company's stockholders in the form of a dividend. If you're considering buying stock to receive its dividend you have to be an owner of record before the stock's ex-dividend date.

Step 1

Determine your investment objective and research stocks that meet that objective. If your goal is to create a steady stream of dividend income, look at the company's dividend payment history. Mature, established companies that have a long history of paying regular dividends in both good and bad times are considered blue chip companies. Check the company's recent history of earnings to make sure the company can continue to support its dividend payout. Research any changes of management or operational philosophy that might impact earnings or dividends.

Step 2

Research the stock's ex-dividend date. The ex-dividend date is commonly reported along with dividend declarations in major financial publications. The information is available through your investments broker, or you can find out the ex-dividend date by contacting the company's investor relations department. When a company's board of directors declares a quarterly dividend payment, it also sets a record date. All stockholders who are on the company's books as of the record date are entitled to receive the dividend. The ex-dividend date is typically set for two-business days prior to the record date. You must buy the stock before the ex-dividend date in order to be a stockholder of record, and thus be eligible to receive the dividend for this quarter. If you buy the stock on or after the ex-dividend date, you will not receive the dividend.

Step 3

Place your buy order through your broker. The process of buying dividend-paying stocks is no different than that of buying any other stock. You can use a full-service broker, a discount broker or an online broker. If you don't already have a brokerage account, you'll need to complete the firm's new account application and deposit a minimum amount of funds to cover your transaction. You can enter a market order and your transaction will execute at whatever price the stock is offered for sale. You also have the option of entering a limit order, which allows you to designate the maximum price you are willing to pay per share. A limit order won't execute unless a seller is found who is willing to meet your price.

Warning

  • There is little opportunity for arbitrage when it comes to stock dividends. If you buy stock just prior to it going ex-dividend, you are entitled to the dividend payment, but the stock price will typically drop by the amount of the declared dividend once the stock goes ex-dividend.

Photo Credits

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About the Author

Mike Parker is a full-time writer, publisher and independent businessman. His background includes a career as an investments broker with such NYSE member firms as Edward Jones & Company, AG Edwards & Sons and Dean Witter. He helped launch DiscoverCard as one of the company's first merchant sales reps.

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