This piece continues a dividend capture strategy series -- buying stocks for the sole purpose of collecting the announced quarterly dividend and then immediately selling the shares within days after the dividend cash payment has been paid by the company.
Both Domtar and PH Glatfelter offer compelling but different situations for dividend capture.
Whether in bear or bull markets, dividend capture -- also known as buying dividends -- can be a lucrative strategy that requires pinpoint timing to make money.
To qualify for a dividend check, investors must own shares of either Domtar or PH Glatfelter prior to July 2 (the record date), which is the last day both companies will acknowledge its roster of shareholders. Buying shares after on or after July 2 will be too late. Does either company qualify as a long-term hold? Let's investigate, starting with Domtar.
UFS data by YCharts
Headquartered in Montreal, Canada, Domtar -- a small-cap company -- rarely gets mentioned when discussing some of the top dividend-paying stocks on the market.
But it should be.
Since resuming its dividend in 2010, Domtar has raised its quarterly payout from 25 cents a share to current levels of 40 cents a share. When factoring in that its quarterly payout was a mere 5 cents only decade ago, this translates to a 700% dividend increase since 2005.
Domtar's current 40-cent dividend yields 3.70% annually, which is 1.7 percentage points higher that what the average company in the S&P 500 (SPX) index pays. Even with UFS shares up some 8% in 2015, the stock is cheap, trading at just six times earnings, against a P/E of 21 for the S&P 500 index.
With the company scheduled to pay its dividend July 15, investors can have the best of both worlds -- a cheap stock with a high yield. In other words, not only is the dividend capture strategy highly profitable, it also comes with relatively low risk.
PH Glatfelter, meanwhile -- though a similar company to Domtar in terms of addressable market -- doesn't posses the same compelling qualities. Headquartered in York, Pa., PH Glatfelter pays a 12-cent quarterly dividend that yields 2.14% -- slightly above the market's benchmark 2.00% yield. That's not enticing enough to hold for the long term, given the company is struggling to grow sales (down 9% in the last quarter).
That said, with the dividend capture strategy, PH Glatfelter's business fundamentals don't matter much, since this is a short-term position used only to collect the dividend. Besides, PH Glatfelter, which has raised its quarterly payout by only 33% in 10 years, doesn't appear eager to raise it again any time soon.
But what we know for certain is that the company will pay on August 3.
Granted, August 3, which amounts to 21 full trading days, is a long time between PH Glatfelter's record date (July 2) and its payout date. But the company's stock does have an average analyst 12-month target of $27, suggesting 21% gains from current levels of around $22.
This should offer some protection during that period. Investors should not hold on to the stock once the dividend check has arrived.
Once the cash is in hand, they would do better to sell the shares and look for other options.