Consequently, another major strand of the literature argues that PDRs less than one reflect the execution costs faced by tax-neutral or tax-advantaged entities employing "
dividend capture" strategies (see, e.g., Kalay, 1982; Boyd and Jagannathan, 1994).
Its top holdings include familiar names such as McDonald's and ExxonMobil, This mutual fund also holds some high-yielding preferred stocks and may use "
dividend capture" strategies, acquiring stocks just before they make their dividend payouts.
(1984) and find that the high-yield stock ex-day returns were highly influenced by corporate
dividend capture.
Lummer, 1984, "The Cash Management Implications of a Hedged
Dividend Capture Strategy", Financial Management, 13:7-17
In a recent letter ruling (LTR 9128050, 4/4/91), the IRS evaluated the efficacy of a
dividend capture strategy.
However, this conclusion applies only to a carefully filtered sample of high-yield securities that are likely targets of corporate
dividend capture after the introduction of negotiable commissions in May 1975.
Dividend capture by taxable corporations, which face lower taxes on dividend income than on capital gains, represents a special type of short-term trading.
It invests globally in dividend-paying or income-generating securities across multiple asset classes and also uses enhanced income strategies by engaging in
dividend capture trading; option overwriting; and realisation of gains on the sale of securities, dividend growth and currency forwards.
A major use for nonstandard-settlement trades is
dividend capture. By purchasing a dividend-paying stock and simultaneously selling that same stock with a different settlement date, a trader can lock in a dividend without risking a fall in the stock price.
It invests globally in dividend-paying or income-generating securities across multiple asset classes and also uses improved income strategies by engaging in
dividend capture trading; option overwriting; and realisation of gains on the sale of securities, dividend growth and currency forwards.
The marginal investors are short-term traders who generally practice
dividend capture by buying high-dividend-yielding stocks cum-dividend and selling them ex-dividend.(3) The size of any ex-day abnormal returns created by dividend clienteles will be arbitraged away by short-term traders up to (or down to) these traders' marginal transactions costs.