Dividend Selling

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DEFINITION of 'Dividend Selling'

A dishonest broker tactic that involves convincing a client to purchase a stock because it's about to pay a dividend. The broker pretends that this recommendation is in the client's best interest because the dividend will supposedly generate instant returns for the client. In reality, the trade is in the broker's best interest because of the commissions it will generate. The recommendation is dishonest because once a stock is trading ex-dividend, its price decreases by the amount of the dividend, and the investor does not come out ahead.

INVESTOPEDIA EXPLAINS'Dividend Selling'

Dividend selling makes the investor worse off for two reasons. First, he has lost the commission he paid, and commissions to full-service brokers who make stock recommendations are expensive. Second, he may have a short-term tax liability because of the dividend. An honest broker would advise the client to buy the stock after the dividend had been paid to avoid the tax liability, and the broker would only suggest the stock if its fundamentals recommended it for purchase.

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RELATED FAQS
  1. How do dividend distributions affect additional paid in capital?

    Whether a dividend distribution has any effect on additional paid-in capital depends solely on what type of dividend is issued: ... Read Full Answer >>
  2. When does the holding period on a stock dividend start?

    The holding period on a stock dividend typically begins the day after it is purchased. Understanding the holding period is ... Read Full Answer >>
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    Among the companies that offer the most stable dividends for risk-averse investors are large, solidly established U.S.-based ... Read Full Answer >>
  4. What average annual total return does the utilities sector generate?

    Due to their highly stable earnings and cash flows, utilities companies are popular among investors interested in dividend ... Read Full Answer >>
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