A recent strategy that has been touted on some web sites is called "dividend stripping." This involves buying stocks just before they go ex-dividend and selling them afterwards in the hope that the dividend can be collected without incurring large losses on the stock. We ran a study to see how this worked in practice. Does the market efficiently price the stock after the dividend?
A large study was conducted from 1994 to present (6,679 dividend payouts). We bought equal amount of the S&P 100 the day before the ex-dividend date and sold them back out on the open of the ex-dividend date. We should see a profit above the baseline if dividend-stripping works.
A table of the results was displayed. The table compared the average P/L with the dividend payout, average return with the dividend and the average SPY (S&P 500 ETF) returns. We also broke the days down into up days for the market versus down days and a table showed those results separately.
Watch this segment of Market Measures with Tony Battista, guest host Pete Mulmat and Chris Grace from the research team for the valuable takeaways and the detailed study results testing dividend stripping.
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