The Lemon Fool

I have a significant holding in ISF which went ex-dividend this week and pays the four figure dividend 27 March. I am thinking now to sell the full holding of ISF and buy VUKE in time for when it goes ex-dividend on 21 Mar and effectively double dip on the dividend. iSF and VUKE both track the same index (FTSE 100) so any frictional costs are small vs dividend amounts realised and my market exposure is unchanged.

Sounds too obvious so clearly I am missing something?

It's called dividend washing, and of course what happens on the ex-div date is that, ceteris paribus, the capital value drops by the amount of the dividend. You can see that in this 5-day chart of ISF vs the FTSE 100. Note the approx. 1% drop on 14-Mar, the ex-div date, corresponding to the amount of the quarterly distribution.

So, all you are doing is turning capital into income, which may or may not be useful, depending on your individual situation, but you won't be ahead overall of where you'd be by just holding ... otherwise everyone would be doing it.

Many years ago I held an income unit trust, it paid a good dividend well ahead of the FTSE and was generally on an upward only trend over many years.

Reading the annual report it became clear they bought and sold shares, just to get the dividend in order to keep the annual dividend record in tact , not having a revenue reserve unlike Investment Trusts...

This buying and selling was clearly inefficient and expensive, I sold out not long after.