Ever since the tide turned against growth stocks late last year, investors have flocked to dividend shares for (relative) safety.
The idea is that if share prices aren't going up, you might as well get some income back as compensation for having your money tied up.
The great advantage for Australian investors is that the ASX is one of the world's best for dividend investing.
That's because of Australia's tax rules that favour dividends over other ways of capital return, such as share buybacks.
The two sectors that dominate the ASX, mining and banks, both make wide use of dividends and franking to make themselves more attractive to investors.
So that's all great, but how do you take advantage?
If you're willing to put in some work, some investors practise what's known as "dividend stripping". Marcus Today founder Marcus Padley explained what this is in a recent blog post.
How to perform dividend stripping
The general principle of stripping is to buy the stock before the ex-dividend date, harvest the income, then sell it off.
But it's not just a short term play. Padley pointed out that holding for a reasonable amount of time is required for a number of reasons.
"Remember the 45-day rule…. This says that you need to hold a stock for 45 days not including the buy or sell date to qualify for the franking credit," he said.
"So buying 45 days before a stock goes ex-dividend makes sense and doing so will usually catch the pre dividend run if there is one."
ASX shares that have an ex date approaching soon usually see their price rise due to the numerous investors who are seeking to harvest that dividend.
So shrewd investors will want to buy nice and early, before the herd starts doing the same.
You need to be careful
One warning from Padley is that the ASX shares you buy for dividend stripping still need to be quality stocks that you'd be willing to hold on for a long time.
That's because things might not go to plan — like the stock price plummets or the company decides to reduce its dividend payout.
"Only buy stocks for the dividend that you would be quite happy to hold a bit longer if the strategy went oblong in the short term."
The other tip is to go for reliable dividend payers — not businesses that are putting out a massive one-off dividend.
That's because the stock price fall after the ex date is usually dramatic for the one-off payers from all the dividend strippers running for exits.
And never buy a stock purely for income.
"Income alone means nothing if capital is leaking out of the back door. Anyone can pay a high yield out of capital," said Padley.
"Making money in dividend stocks means trying to make money in the stock as well as from the dividend."
