NEW YORK (TheStreet) -- Investors who buy Illinois Tool Works (ITW) and U.S. Bancorp (USB) for the payoff -- both are scheduled to go ex-dividend June 26 -- are protected from the risk of that strategy by the stocks' upside potential and relative cheapness.
To qualify for a dividend check, investors must own shares of either company prior to June 30. Illinois Tool Works, a manufacturer of diversified industrial products and equipment, is scheduled to pay its dividend on July 7, while shareholders can expect a check from U.S. Bancorp the following week, on July 15.
Both companies trade on a relatively cheap valuation, with an average price-to-earnings ratio of 16, compared to the S&P 500 (SPX), which trades at a P/E of 21. That lessens the risk for investors who buy these shares solely for the dividend, a strategy known as dividend capture.
That strategy consists of buying stocks for the sole purpose of collecting the announced quarterly dividend and then selling the shares within days after the dividend cash payment has been paid by the company. Whether in bear or bull markets, dividend capture can be lucrative. But it also requires pinpoint timing.
Let's take a look at the merits of both companies, starting with Illinois Tool Works.
Illinois Tool Works, whose shares are down about 1% on the year and have lost more than 2% in the past six months, is an attractive play here. The Illinois-based company pays a 48.5-cent quarterly dividend that yields 2.1% annually. Since 2010, Illinois Tool has raised its dividend payout by more than 56%. The most recent hike was an increase of more than 15% from 42 cents per share. And there is nothing to suggest that the company won't raise it again next year.