3 Healthcare REITs Are Going Ex-Dividend in Days Ahead
Dividend harvesting is a strategy that allows an investor to capture a company’s dividend with the intention of selling the stock shortly after the stock goes ex-dividend. The strategy goes against the efficient market hypothesis (EMH) that surmises a stock’s price reflects all information regarding that stock.
But as many investors know, stock movement is rarely rational. And so, the dividend capture strategy seeks to take advantage of his strategy. To use this strategy investors hold the stock only for as long as needed for the share price to recover after the dividend is paid. The shorter the time frame the better. In some cases, investors are simply looking to capture enough of a dividend to offset any loss they take on the share price itself.
The efficient market hypothesis is associated with the idea of a “random walk,” which was popularized by Burton Malkiel in his book “A Random Walk Down Wall Street.” Written 50 years ago, it still is considered required reading for retail investors.
What is the Ex-Dividend Date?
The ex-dividend date is the date when an investor must own a stock in order to be eligible to receive its dividend. For a shareholder to collect the dividend they must own the stock before the ex-dividend date.
The ex-dividend date is significant for investors who want to use the dividend capture strategy because, on the ex-dividend date, the stock will trade at a lower price that reflects the dividend payment on a per-share basis.
How Does the Dividend Capture Strategy Work?
As mentioned above, this is an example of the efficient market hypothesis (EMH). And it should mean that dividend harvesting would be impossible. So if a company announces a $1.50 per share dividend and its stock is trading for $125. It should trade at $123.30 on the ex-dividend date.
But markets aren’t always that efficient. So let’s say on the ex-dividend date, the aforementioned stock rallys and only drops $1.30. This creates an opportunity for nimble traders who bought the stock to sell and capture a net profit as the 20-cents per share loss is offset by the $1.50 per share they receive.
REITs are Attractive Candidates for Dividend Harvesting
Because of their business model, real estate investment trusts (REITs) can be good stocks to identify for using a dividend capture strategy. REITs are required by law to pay out at least 90% of their income in the form of a dividend. This means these stocks usually have dividend yields well in excess of the market average.
Another advantage of using REITs for a dividend capture strategy is that many of them pay monthly dividends. Typically this means the ex-dividend date’s are on a similar date every month. Using Fintel’s Dividend Calendar, here are three healthcare REITs that are going ex-dividend in May.
LTC Properties (US:LTC) is a REIT that has a balanced portfolio of approximately 50% senior housing and 50% healthcare properties that require skilled nursing care. The company holds 181 investments in 27 states.
LTC stock has a dividend yield of 6.91% and has announced a monthly dividend of 19 cents per share. The stock will go ex-dividend on May 22, 2023. The last time the stock went ex-dividend, on April 19, it dropped from $34.55 to $34.11.
However, within two trading days it bounced back to $34.42 which would have allowed investors to capture at least some of the dividend for a profit.
Tekla Healthcare Opportunities Fund (US:THQ) is a closed-end fund that seeks current income and long-term capital appreciation by investing in companies engaged in the healthcare industry, including equity securities, debt securities and pooled investment vehicles.
THQ stock has a dividend yield of 7.23% and has announced a monthly dividend of 11 cents per share. The stock will go ex-dividend on May 19, 2023. When THQ stock went ex-dividend in April, it was almost a textbook example of the dividend capture strategy, The stock closed the day before the ex-dividend date at $19.27. It plunged as low as $19.13 but by the end of the session was up to $19.21.
Tekla World Healthcare Fund (NYSE:THW) is another closed-end fund that invests in the healthcare industry via equity securities and debt securities.
THW stock has a dividend yield of 9.64% and has announced a monthly dividend of 11 cents per share. The stock will go ex-dividend on May 19, 2023. Based on the last time the stock went ex-dividend in April this is another strong candidate for dividend harvesting. The stock closed the day before the ex-dividend date at $14.76. It opened on the ex-dividend date at $14.42 but was back up to $14.72 by the end of the session. This would have allowed investors to sell the stock and capture nearly the entire dividend.
This article originally appeared on Fintel
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