I came across this short explanation of a “secret” to make money selling dividend paying stocks short.Â Read along and see if you can find out why this strategy isn’t all that it is cracked up to be.
One thing I have learned about stocks is that certain trends are a given. One trend in particular is that of the “dividend crash.”
The dividend crash, as I call it, is the peculiar nature of most stocks to fall in value just about the time dividends are paid out. Look at this 5 year example of AT&T stock. Nearly every dividend marker on the chart is at the bottom, or very close to the bottom, of the share price. It is then followed by a climb in value. Verizon has the same thing in it’s history as well.
Now let me say this as well, not all companies go through this dividend crash phase. That is why it is very important for you to look at the history of a stock before attempting to use this trend for financial gain.
A quick look at Sprint will show you that they do not go through this phase in the same way that AT&T and Verizon do!
I hope this information proves as valuable to you as it has to me.
One thing that this gentleman forgot to mention was that if you sell a stock short, you are responsible for the dividend payments that are made while you are shorting the stock.Â Therefore, your only chance of making a profit is if the stock drops firther than your purchase price minus the dividend payment owed.
This strategy can work and it has been tested time and again.Â However, it isn’t nearly as easy as this article makes it out to be.