You don’t have to wait to reinvest due to trades taking three days to clear. You can sell a stock and immediately buy another one using the ‘float’ to do it. This is a three day float on a stock transaction; option transactions clear in a day. As long as you don’t exceed your cash or margin in the account, you can do this over and over.
That is how one can successfully capture dividends. The idea is to take a fixed amount of money and chart out when dividends are paid by solid companies. The idea is to get as many good prospects as possible lined up one after the other and roll that money from one to the next, capturing the dividend using the ‘float’ to do it. You buy a stock late on the record date, sell it immediately the next session using the clearing period to go after the next stock paying the next dividend you want to capture.
For example, say the dividend record date falls on a Thursday. So, you can buy the stock on Monday as day one. You can then sell the stock on Tuesday. As it takes 3 days for the sale to ‘clear’, when the record day comes on Thursday, you are still in the 3-day window of ownership. You are already out of the stock and no longer subject to price fluctuations and are on to the next stock. Note that holidays and weekends are not counted; it is the actual trading session that counts as a day.
This really only works well in a retirement account. The lower dividend tax rate does not help you much or at all as it requires the investor to hold the stock a minimum of 31 days to get the lower tax rate. To really make money capturing dividends you have to have a continual stream of income. If you have a block of money or stock you are using as collateral, you cannot use it for more than one buy at a time. Thus you can use the float but you cannot use it for more than one sale at a time and you have to wait the 30 days to make it work with taxes outside of an IRA.