Dividend Stripping
Dividend stripping is a strategy where an investor buys a company’s stock just before the ex-dividend date to receive the dividend, then sells the stock after its price drops. The capital loss from selling the stock at a lower price is typically offset by the dividend income. When the dividend income was tax-free this was beneficial startegy, making it attractive to investors. However, in India, dividends are now subject to tax, reducing the effectiveness of dividend stripping as a profitable strategy. Investors must consider the tax implications when using this approach in their investment decisions.
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