Why does the share price drop on Ex-Dividend date?
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- Опубліковано 20 лип 2024
- In this video I go through why the share price drops on the Ex-Dividend date. I’ll use FMG as an example. Sign up to my weekly newsletter: sanjee.substack.com
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Timestamps:
0:00 - Intro
0:39 - What are dividends?
1:34 - Key dates
2:00 - Ex-dividend date
2:23 - Dividends per share (DPS)
2:56 - Why does the price drop?
4:20 - Example 1
5:04 - FMG Example
7:08 - 3 directions the price can go
8:21 - FMG was already going down
9:38 - Should you buy on the Ex-D date?
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Disclaimer:
The information provided in this video is general in nature only and does not constitute personal financial advice. You should also consider seeking the advice of an investment advisor who holds an Australian financial services (AFS) licence or is a representative of an AFS licensee. Be sure to work with someone who understands your investment objectives and tolerance for risk. Your investment advisor should understand these products, be able to explain whether or how they fit with your objectives, and be willing to monitor your investment alongside you. There are some Amazon Affiliate links above - if you purchase from there, at no additional cost to you, I will earn a small commission for each sale. - Навчання та стиль
I still dont understand any benefit of a company paying a dividend at all if its a zero net gain.
Its not really a zero net gain, a company will hold onto a dividend when it believes the money would be better invested back into the company to result a higher share price for the holder
On the flipside (largely mining companies) will decide to pay excess funds in a form of a dividend to shareholders because the money cannot be put anywhere substantial in the business to generate a return. So its better off in shareholders pockets.
The price of a share would also roughly include the time until the next dividend is paid, so for example if bhp was $45 a share, and decided to pay $2 per share, the share price will be $43, if bhp somehow managed to perfectly keep the value of the company perfectly steady, not decline or increase, the share price should still gradually trickle back up to the $45 mark until the next dividend is paid.
If price is 45$ the company with x value = 45$ pay 5$ div. This 5$ it s paid from the company account NOT from marketcap¡¡ so if company havet same value I still do not understand how can price can go down when dividend is not paid from marketcap while company have same value, is not logical.
It's definitely something to keep in mind when looking at share prices when it's close to dividend dates. If you're holding you just have to remember that the price may change a bit around the dividend date or the announcement date.
Great video, well explained!
I still not getting the point.... if a company x have value 10$ per share. But before earnings which is 1$ and it stay at same because shareholder keep price same, why should go down by the dividend? Yes money leave the company but the company do not pay from the marketcap!! The price should go down just because people sell the stock if they think it will be not good future for the company , not because the company pay div... normally the dividend should not affect the stockprice
The answer to my question. THANK YOU!!
I wrote a comment but it seems to have disappeared.
The reason it drops equal to the value of the dividend is because the market is efficient. If the price is $10 today and will receive a $2 dividend tomorrow, then the price today is actually $12, because I'm guaranteed to get $2 tomorrow if I buy it now. The price you see before the dividend is paid out has already factored in the upcoming payout, so once the ex-dividend date is hit, the price drops by exactly that amount because the value that was already priced into the stock is no longer a factor in its valuation.
This is the reason why AAA zig-zags up and down. The future dividend is priced into valuation of AAA every day, causing the price to rise up until the ex-dividend date, when it then resets back to its low.
Are there any statistics showing how quickly share prices recover after paying out dividends? I'm just thinking whether dividend stripping works.
Great video 👍🏻
Good explanation. Thanks
Sir mere pass cdsl stock ke 50 share hai aur uska dividend upcoming hai.
Toh agar mei abhi aur 50 share buy krlu toh kya muze pure 100share ka divided milega ya sirf 50 share ka milega.?
Aur ha uski ex divided date ja chuki hai so please reply sir
I hold shares but doing the covered calls during the ex-date, do i get the dividend....or they don't see i'm holding the shares? thx
what about etf's ?
I think it’s at least 2 days before ex dividend date then it will be pending the day after the ex dividend day I’ve tried this many times.
In my experience with Australian dividends, the price drops more than the dividend value when ex dividend. Many reasons I suspect. The dividend value is boosted by franking so taken into account. Secondly, a lot of traders and investors exit the share after ex date so a large volume of selling orders driving the price down.
That's a great point David. I imagine there is quite a bit of selling pressure from the Dividend harvesting ETFs out there too.
Hi Sanjee, I don't think you've done a dedicated video on franking credits but that would be a good one to get an explanation from you
Hi there! Thanks for the suggestion, I can certainly look into it, but there are some great videos and examples out there on the internet that explain how it works already. Also something you should probably discuss with your accountant as it might vary for your specific situation :)
Hi Sanjee, thanks for all your video's they have been very informative and the very first one actually convinced me to buy into my very first ETF. I was wondering if you could do a video ranking the ETF's with the best franking %?
You forget MAIN factory of the price drop; is the exchange!! So the exchange is valuing the company not the investors??????!!!
Good Point
If the stock is 10USD and you buy it before the ex date then the price goes to 8 usd! hmm Yeew got 2 usd dividend from my own money and paid taxes from my own too (bonus) now my 10USD is 10-15% = 9.7 USD (this is just because of the exchange) hahahaha
if you buy share for 10 and sell fo 8, can you claim the loss to offset the dividend gain?
Dividends are taxed as income generally. Losses are dealing with capital gains tax. You can offset capital gains with capital losses up to a small dollar amount each year. So really no a capital loss does not offset dividend income