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What is a Dividend Rollover Plan?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 08 November 2018
  • Copyright Protected:
    2003-2018
    Conjecture Corporation
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Dividend rollover plans are processes that involve the buying and selling securities that are shortly going to pay a dividend. When timed correctly, the dividend rollover plan can allow the investor to qualify for receiving a dividend from the investment, even though the stock has not been held for a long period. In order to make use of this type of plan, investors must pay close attention to the scheduling of both the record date and the ex-dividend date associated with the stock.

When companies are preparing to issue dividends to investors, they establish what is known as a record date. This is simply the date set aside for calculating and issuing the dividends to qualified investors. As part of the preparation for this process, the corporation advises NASDAQ of the record date through what is known as a dividend notification. The market in turn uses information about record dates to schedule ex-dividend dates.

The scheduling of the ex-dividend date is very important to investors who are currently engaged in transactions related to the stock offering. In order to qualify for participation in the issuance of dividends, the investor must own the stock before the arrival of the ex-dividend date. As added incentive, any pending transactions not completed before the arrival of the ex-dividend date are subject to a reduction in the value of the shares.

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In order to maximize the return on stock issues that will shortly issue dividends, the investor wants to be sure to complete the purchase of the related shares before the ex-dividend date arrives. Ownership of the shares as of the ex-dividend date qualifies the investor for the dividend payments that will begin issuing on the record date.

However, the dividend rollover plan requires one more step to be complete. When the ex-dividend date arrives, the investor will sell the shares at some point during that trading day. That effectively allows the investor to avoid incurring a great deal of reduction in the value of the stocks involved. By timing this combination of a buy and a sale just right, the investor can make a significant return without incurring much in the way of a loss, resulting in a net profit from the use of the dividend rollover plan.

Sometimes referred to as a dividend capture strategy, the dividend rollover plan has the advantage of providing excellent potential for making money while carrying a relatively low degree of risk. However, market analysts that do not consider a dividend rollover plan sometimes note that the actual return may not be as significant as envisioned, since the market is likely to anticipate the reduction in value that comes along with any dividend pay out.

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