What is Dividend Yield Play?

Dividend yield play is a strategy suited for investors with a moderate risk profile. However, this requires monitoring your investment portfolio on a regular basis. The strategy aims to generate a regular stream of income by using the same capital investment of the company.

In basic terms, investors buy shares from a company that pays fully franked dividends, collect the dividends as income, then sell the shares after they go ex-dividend. The capital is then rolled into a different dividend paying company. Investors have to hold the shares for 45 days to receive franking credits. Investors who have less than $5000 franking credits to claim are exempt from this rule.

The strategy is usually done by buying in a week or two before the ex-dividend date. When the company trades the ex-dividend share prices drop by the dividend amount. After a couple of weeks following the ex-dividend date, stocks recover and the shares are sold, providing income and potential profit. For optimal results, the share price must not drop more than 5% of the closing price before the company's profit announcement.

This move is popular among active investors who buy and sell their shares in a handful of companies that pay dividends. The initial capital investment can be rolled six times in 12 months with over 6 shares. The investor can also use the same strategy using instalment warrant.