Dividend stocks are a powerful way to invest for both income and growth. But many go searching for ways to boost their income even more, with the dividend capture strategy designed to have you move quickly in and out of stocks right as they're making their payouts. Stocks in the Dow Jones Industrials (DJINDICES:^DJI) are especially popular candidates for the dividend capture strategy because of their high dividend yields. But does dividend capture make sense for you?
In the following video, Dan Caplinger, The Motley Fool's director of investment planning, looks at the controversial dividend capture strategy with an eye toward debunking some common misconceptions. Dan notes that at least in theory, a stock that pays a dividend has its intrinsic value drop by the amount of the payout, and usually, the share price follows suit. Yet another reason to proceed with caution is that the IRS has made dividend capture a less profitable strategy, requiring investors to hold shares for 61 days surrounding dividend payments in order to get qualified-dividend tax treatment. The difference in tax can be especially high for high-yielding stocks Pfizer (NYSE:PFE), Merck (NYSE:MRK), and Verizon (NYSE:VZ), and so Dan concludes that in general, sticking with a long-term buy-and-hold dividend strategy will be more lucrative than following short-term dividend capture strategies.
Top dividend stocks for the next decade
The smartest investors know that dividend stocks simply crush their non-dividend-paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.
Dan Caplinger and The Motley Fool have no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.