A few weeks ago, a subscriber wrote me to inquire about why shares of the Chile Fund (CH) were acting so strange. Specifically, he wanted to know why the fund climbed from $17.73 on Monday, December 12th to $18.81 on Friday, December 16th, only to plunge like a lead balloon to $16.70 a share on December 20th.

The company's website held the answer to his question -- a news release for Friday, December 9th announced an upcoming dividend payment. Management said they planned to make an enormous dividend payout of $3.08 per share on January 6, 2006 to "holders of record as of December 21, 2005."

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So, why did the fund start running out of steam after December 19th? Before I answer that question, I first need to tell you about four important dates every income investor should know.

Declaration date -- This is the date when a firm announces an upcoming dividend payment, usually by issuing a press release a few weeks before the dividend will actually be paid. The Chile Fund's declaration date was Friday, December 9th, but the market didn't have time to react until Monday, December 12th.

Record date -- This is the date on which a company draws up the list of shareholders who qualify as "holders of record" to receive its upcoming dividend payment. In this example, the record date for the Chile Fund's distribution was December 21st.

Payable date -- This is the day the dividend check goes in the mail or is electronically transferred to your brokerage account. The payable date for the Chile Fund's distribution was January 6th.

These first three dates are simple enough to understand. It's the ex-dividend date that's a bit trickier than any of the others. It's also more important.

Ex-dividend date -- By this date, it's already too late to become a "holder of record" for receiving the dividend payment. The ex-dividend date is usually two business days before the record date and a stock is usually marked with an "x" in the newspapers on that date. In this example, the ex-dividend date for the Chile Fund's distribution was December 19th, and the market reacted the next day -- December 20th.

So here's the game:  Investors flock to the stock when the dividend is declared (declaration date). That drives up the price until the ex-dividend date. Once a stock "goes ex-dividend," the price falls to reflect the value of the dividend payment. After the ex dividend date, buyers of the stock or fund will no longer receive the security's upcoming dividend payment. A stock may or may not bounce back a few days after it goes ex-dividend.

As you can see in our chart, the Chile Fund's share price climbed after a dividend was announced and then fell sharply once the fund went ex-dividend.



Income investors who buy stocks for their dividend payouts will always keep a close watch on the ex-dividend date. Using what's called a "dividend capture strategy," these investors scoop up the stock right before it goes ex-dividend, capture the dividend, hold the stock for at least 61 days -- the minimum time required for a dividend to be taxed at the recently reduced 15% rate -- then move out of the stock and into another security that is about to go ex-dividend.

By employing a dividend capture strategy, investors can capture 50% more dividends in any given year from the same investment dollars.  Here's why...

Let's say an investor purchases a stock that pays quarterly dividends (most companies pay on a quarterly basis).  In this case, the investor would receive four dividend payments throughout the year.

However, if that same investor were to use a dividend capture strategy, then he or she would not hold the stock for a full year. Instead, the investor would purchase the stock right before its ex-dividend date and would sell it 61 days later. After the sale, he or she would then turn around and plow that money back into another company that is about to pay a sizable dividend payment.

If you assume a 61-day holding period for each captured dividend, this investor would be able to pocket six dividend payments during the year (365 days divided by 61 equals 6) instead of the traditional four -- that's 50% more dividends from the same investment dollars. Even better yet, by focusing his or her dollars exclusively on those companies that offer the very highest dividend payments in any given period, the investor using the "dividend capture" strategy could come out even further ahead.

Thanks to the growing popularity of this dividend capture strategy, I've decided to make it a regular feature of my premium income-oriented newsletter -- High-Yield Investing. In an effort to help my readers time their future income investment decisions, in all future issues of High-Yield Investing I'm going to include a list of stocks with large dividends that will be going ex-dividend in the coming month.

This feature should prove to be extremely valuable for those readers looking to take advantage of a "dividend capture" strategy. However, in order to receive this list each and every month, you'll need to register for a paid subscription to High-Yield Investing. To learn more about this premium service for self-directed income investors, please visit the following link:
https://www.streetauthority.com/subscribe-hy.asp

Carla Pasternak
Editor
High-Yield Investing
http://www.StreetAuthority.com

Carla has been employed in the investment industry for more than two decades. In addition to her work as a writer for several other nationally recognized financial publishers, her previous experience includes a position as President of a well-respected investor relations firm. She has also been writing shareholder reports for public companies (annual reports, speeches, corporate profiles, slide shows, etc.) since 1980.

A highly successful investment analyst, Carla specializes in high-yield, income-paying stocks. In that pursuit, she's always mindful to select companies that not only pay rich dividends, but that also have the potential to deliver strong long-term capital gains.

On the educational front, Carla holds both MBA and Ph.D. degrees. When she's not watching the market, she's teaching business courses at the college level and managing several million dollars in portfolio assets.

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