Dividend Selling


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.

BREAKING DOWN '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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  2. Dividend Payout Ratio

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  3. Dividend

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  4. Ex-Date

    The date on or after which a security is traded without a previously ...
  5. Ex-Dividend

    A classification of trading shares when a declared dividend belongs ...
  6. Record Date

    The cut-off date established by a company in order to determine ...
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    Depending on the specific assets in its portfolio, a mutual fund may generate income for shareholders in the form of capital ... Read Full Answer >>
  2. How often do mutual funds pay capital gains?

    The frequency with which mutual funds pay capital gains varies. However, funds that generate a profit within a given year ... Read Full Answer >>
  3. Can dividends be paid out monthly?

    Though it is more common for dividends to be paid quarterly or annually, some stocks do pay monthly dividends. Dividends: ... Read Full Answer >>
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