Dividend Stripping

Dividend stripping is the purchase of shares just before a dividend is paid, and the sale of those shares after that payment, ie. when they go ex-dividend. This may be done either by an ordinary investor as an investment strategy, or by a company's owners or associates as a tax avoidance strategy.

For an investor, dividend stripping provides dividend income, and a capital loss when the shares fall in value (in normal circumstances) on going ex-dividend. This may be profitable if the income is greater than the loss, or if the tax treatment of the two gives an advantage.

For further reading:

http://www.mutualfundsindia.com/divstrip.asp

Contributed by:

Veena Vishwanathan

Globsyn Business School