I've read many articles and comments that refer to the notion of dividend capture, i.e., purchasing a stock right before the ex-dividend date in order to qualify for that dividend. First, for a taxable account, this is highly tax inefficient investing. You've essentially transformed a portion of your balance sheet cash into taxable income. Most people seek investments that minimize tax burdens, not investments that increase taxes paid.
The second aspect is that there is no true economic value creation. At first glance, some people might say great, I get this dividend for owning the stock for just a day, it is effectively free. The cash for the dividend is already valued in the stock price that you've purchased. The value of the stock will drop by an amount equivalent to the dividend after the dividend is committed at the opening of the ex-dividend date. The stock price is effectively reduced by the dividend amount paid to the shareholder. There is no magical value creation.
In the taxable account, the taxable income created is effectively offset by capital loss in the future (assuming that there are no other impacts on the stock, which is very unlikely). So most likely in the near term you will pay more taxes with a potential tax benefit in the future. In tax deferred accounts, the tax impact is obviously not a factor. Furthermore the status of qualified dividends precludes the possibility of a tax rate arbitrage. A qualified dividend is taxed at 15%, at least under the George W. Bush tax policies, while losses can be potentially used to offset against ordinary income. Due to differences in these rates, one might see an arbitrage. However, in order for a dividend to be qualified, the investor has to own the stock for a window of 60 days around the ex-dividend date. Over this time frame, one would be taking sufficient risk in owning the stock that would probably offset any potential tax benefit not to mention to the exposure to the stock itself.
To take a closer look at opening stock prices on the ex-dividend date, I chose a popular dividend stock, Frontier Communications (FTR). FTR is currently offering a sky high dividend yield of 15.0% based on a forward dividend of $0.75 and the recent closing price of $4.99. Before you get too excited though, it should be noted that FTR is also down almost 50% from a year ago. I looked the difference between the closing price on the day before ex-dividend and opening price on the ex-dividend date for every dividend back to 2005. There was never a case when the stock opened the next day at a higher price than the previous day's close as one would expect.
| Ex-dividend date | Previous trading day | Dividend amount | Previous trading day closing price | Ex-dividend date open | Decrease |
| 12/7/2011 | 12/6/2011 | 0.1875 | 5.78 | 5.5 | $0.28 |
| 9/7/2011 | 9/6/2011 | 0.1875 | 7.19 | 7.06 | $0.13 |
| 6/7/2011 | 6/6/2011 | 0.1875 | 8.37 | 8.16 | $0.21 |
| 3/7/2011 | 3/4/2011 | 0.1875 | 8.13 | 8.01 | $0.12 |
| 12/7/2010 | 12/6/2010 | 0.1875 | 9.47 | 9.34 | $0.13 |
| 9/7/2010 | 9/3/2010 | 0.1875 | 7.94 | 7.78 | $0.16 |
| 6/7/2010 | 6/4/2010 | 0.2500 | 8.34 | 8.15 | $0.19 |
| 3/5/2010 | 3/4/2010 | 0.2500 | 7.61 | 7.43 | $0.18 |
| 12/7/2009 | 12/4/2009 | 0.2500 | 8.46 | 8.1 | $0.36 |
| 9/4/2009 | 9/3/2009 | 0.2500 | 7.19 | 7.02 | $0.17 |
| 6/5/2009 | 6/4/2009 | 0.2500 | 7.54 | 7.36 | $0.18 |
| 3/5/2009 | 3/4/2009 | 0.2500 | 6.86 | 6.57 | $0.29 |
| 12/5/2008 | 12/4/2008 | 0.2500 | 8.15 | 8.08 | $0.07 |
| 9/5/2008 | 9/4/2008 | 0.2500 | 12.54 | 12.29 | $0.25 |
| 6/5/2008 | 6/4/2008 | 0.2500 | 11.56 | 11.49 | $0.07 |
| 3/6/2008 | 3/5/2008 | 0.2500 | 11.13 | 11.05 | $0.08 |
| 12/5/2007 | 12/4/2007 | 0.2500 | 12.81 | 12.81 | $0.00 |
| 9/5/2007 | 9/4/2007 | 0.2500 | 14.64 | 14.21 | $0.43 |
| 6/6/2007 | 6/5/2007 | 0.2500 | 15.7 | 15.51 | $0.19 |
| 3/7/2007 | 3/6/2007 | 0.2500 | 14.81 | 14.6 | $0.21 |
| 12/6/2006 | 12/5/2006 | 0.2500 | 14.29 | 14.17 | $0.12 |
| 9/6/2006 | 9/5/2006 | 0.2500 | 13.8 | 13.52 | $0.28 |
| 6/7/2006 | 6/6/2006 | 0.2500 | 12.76 | 12.61 | $0.15 |
| 3/7/2006 | 3/6/2006 | 0.2500 | 13.62 | 13.32 | $0.30 |
| 12/7/2005 | 12/6/2005 | 0.2500 | 12.61 | 12.38 | $0.23 |
| 9/7/2005 | 9/6/2005 | 0.2500 | 13.78 | 13.5 | $0.28 |
| 6/7/2005 | 6/6/2005 | 0.2500 | 13.44 | 13.38 | $0.06 |
| 3/16/2005 | 3/15/2005 | 0.2500 | 12.98 | 12.92 | $0.06 |
| 12/8/2004 | 12/7/2004 | 0.2500 | 14.26 | 14.11 | $0.15 |
| 8/16/2004 | 8/13/2004 | 2.2500 | 14.29 | 12.04 | $2.25 |
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