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Understand Dividend Terminology
Dividends are typically paid in cash and given to shareholders quarterly, although some companies pay dividends irregularly or make payouts in the form of shares of stock. Payouts are only made to shareholders that are recorded on the books of the issuing company. A person must be on record as a shareholder by what's known as the record date in order to receive a dividend.
The date two business days before the record date is known as the ex-dividend date, since shareholders who buy the stock after that date are buying shares without the dividend.
The payout date can be days, weeks or even months after the record date. This is the date that the dividend is actually paid out to shareholders.
Stock Price on Ex-Dividend Date
Stock market specialists will mark down the price of a stock on its ex-dividend date by the amount of the dividend. For example, if a stock trades at $50 per share and pays out a $0.25 quarterly dividend, the stock will be marked down to open at $49.75 per share.
However, the market is guided by many other forces. If a stock is deemed to be undervalued by investors, the stock price may be bid up, even on the ex-dividend date. Similarly, if investor perception of the value of a stock on any given day sours, the stock may sell off much more than the simple drop due to the dividend.
Some investors may choose to buy a stock specifically on the ex-dividend date. Since companies usually pay dividends every quarter, an investor who buys on the ex-dividend date may get the stock at a lower price but will still be entitled to a dividend three months later.
Still others may buy a stock before the ex-dividend date to capture that dividend, then sell the stock the next day. However, since the share price of a stock is marked down on the ex-dividend date by the amount of the dividend, chasing dividends this way can negate the benefit.
Record And Payout Dates
On the record and payout dates, there are no price adjustments made by the stock exchanges. Those dates are mainly administrative markers that don't affect the value of the stock. From an investment perspective, the important date is the ex-dividend date, as that is the date that determines whether you are entitled to a dividend or not. Payout dates are important to investors, as that is the day they actually receive their money. However, it doesn't affect the value of the company on the open market.
Understand Dividend Terminology
Dividends are typically paid in cash and given to shareholders quarterly, although some companies pay dividends irregularly or make payouts in the form of shares of stock. Payouts are only made to shareholders that are recorded on the books of the issuing company. A person must be on record as a shareholder by what's known as the record date in order to receive a dividend.
The date two business days before the record date is known as the ex-dividend date, since shareholders who buy the stock after that date are buying shares without the dividend.
The payout date can be days, weeks or even months after the record date. This is the date that the dividend is actually paid out to shareholders.
Stock Price on Ex-Dividend Date
Stock market specialists will mark down the price of a stock on its ex-dividend date by the amount of the dividend. For example, if a stock trades at $50 per share and pays out a $0.25 quarterly dividend, the stock will be marked down to open at $49.75 per share.
However, the market is guided by many other forces. If a stock is deemed to be undervalued by investors, the stock price may be bid up, even on the ex-dividend date. Similarly, if investor perception of the value of a stock on any given day sours, the stock may sell off much more than the simple drop due to the dividend.
Some investors may choose to buy a stock specifically on the ex-dividend date. Since companies usually pay dividends every quarter, an investor who buys on the ex-dividend date may get the stock at a lower price but will still be entitled to a dividend three months later.
Still others may buy a stock before the ex-dividend date to capture that dividend, then sell the stock the next day. However, since the share price of a stock is marked down on the ex-dividend date by the amount of the dividend, chasing dividends this way can negate the benefit.
Record And Payout Dates
On the record and payout dates, there are no price adjustments made by the stock exchanges. Those dates are mainly administrative markers that don't affect the value of the stock. From an investment perspective, the important date is the ex-dividend date, as that is the date that determines whether you are entitled to a dividend or not. Payout dates are important to investors, as that is the day they actually receive their money. However, it doesn't affect the value of the company on the open market.
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Disclaimer: Of course, all of this is my opinion and you should not make any investment decisions based on my opinion. I have not received any non-public information.
