What Is The Ex-Dividend Date?
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- Опубліковано 13 чер 2024
- If you want to receive a dividend you must buy a share or fund before a specific date. It's more complicated if you have Accumulation or Income funds. If you want to avoid the mistake I made, and get to grips with the declaration, record, ex-div and payment date take a look at this video.
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#PensionCraft #ExDividendDate #IncomeInvesting
Purchasing before the ex-dividend date just means they give you part of your money back and it's then taxable. It's not magic money delivered to you by the company. The price is reduced by the dividend amount. Give 'em $10, they declare a $1 dividend, send you $1, and the share price is $9. That's how it works. It's not magic income.
Thanks for explaining in an understandable way!
Thanks Paul, I'm glad it was useful!
Another great video. Very engaging. Thanks for sharing your knowledge. 👍🏻
My pleasure b4k3r, I'm glad you found it helpful, thank you! Ramin.
as always great video Ramin! :) I'm going over Patreon now to join Q&A groups cheers
Hi Pedro, to join a live Q&A just head over to Patreon here patreon.com/pensioncraft to sign up. All our supporters get to take part and ask questions. Participants tell me they find them very useful. You can also see replays of past Q&As. It'll be great to see you there! Thanks, Ramin.
Do you have to hold the shares all the way through from record date to payment date in order to get the dividend. E.g. can you sell just after the record date and get the dividend?
Very useful thanks. Can I ask how this differs for bonds; when purchasing a bond before the coupon payment date the buyer will have to pay the accrued interest, so is better to wait until the day of or the day after the coupon payment to avoid having to pay the accrued interest?
Hi rgrtnyjjc, if you buy a single bond things are a bit fairer. You pay the "dirty price" which includes any accrued interest to which the bond owner is entitled. So say in one coupon period the coupon is £1 and you buy the bond 3/4 of the way through the period, you would pay the bond "clean" price plus the accrued £0.75 interest to the seller. This is all described in detail in my book "A Financial Bestiary" amzn.to/2zWeKJx Thanks, Ramin.
great video, I had a problem finding my vanguard dividends, I found mine by going to monthly performance view and looking at income returns, not sure if/ how to automatically reinvest it though
Hi Will, some funds are named “Accumulation” and some are named “Income”. The fund can’t change so you have to buy an accumulation fund if that’s what you want. Some funds don’t offer an Accumulation version. For example the VMID fund in my portfolio is income only. That’s a pain because I have to manually reinvest the dividends. Hope that helps, Ramin
An investor always needs to think about tax. Have you ever thought about taxation of accumulation funds? A Vanguard accumulation fund pays no dividend, but it is the responsibility of the owner to look up the reinvested amount over the year (which can be found in the Vanguard long report under "Distribution Table") and then declare that to HMRC as dividend received (at 31 December for Vanguard UK All Share Index UT acc, for example).
If the amount you have to declare is, say £2,000, then you can increase your cost basis by £2,000 when you come to sell so will pay less capital gains tax.
Accumulation fund prices tend not to jump downwards around the ex-div date because the earnings have been continuously reinvested by the fund manager and so are already captured in the price. But it has seemed to me, - though I have not done this -, that it would always be advantageous to sell an accumulation fund just before the the payment date and re-purchase the day after. That way one only pays capital gain taxes, rather than dividend taxes, which are taxed at higher rates and have smaller tax free allowance (£2,000 for dividends vs £12,000 for CGT).
Hi Richard, I use an ISA so I don't think about taxation of accumulation funds but thanks - those are really helpful points about taxation. And a good reason to have an accountant. Thanks, Ramin.
A very informative video. I prefer the Vanguard ETFs over OEIC funds because they drop dividends quarterly and this is nice if you want to take an income coming into retirement without selling down assets. There is nothing like the Vanguard LifeStrategy funds though for diversification over equities and bonds, so I am also holding some of these. As you show VLS60 only pays out once a year, so the income is 'lumpy' from income units. It seemed to me that the only reason to hold VLS60 Income units is if you have them in a taxable account though as this makes tax reporting easier. Otherwise, in a SIPP (when I can get one with Vanguard!) I would just hold VLS60 accumulation units and just sell them down to take income as required because the dividend income to the fund should be reflected in the daily share pricing and there is no transaction cost selling the fund with Vanguard.
Hi macg33zr, thanks for that. The tax implications are something I didn't mention but you make some really interesting points. I guess the Inland Revenue treat fund sales (potential capital gain) differently to dividends (income)? Thanks, Ramin.
Was your "mistake" really a mistake? The share price of your ETFs would typically have dropped by the value of the dividend just after the ex-dividend date (otherwise there is free money to be made). So you bought your shares at a lesser price than they were selling prior to the ex-div date. Someday you will sell and then have a greater capital gain. Would you rather pay capital gains tax (0, 10% or 20%), or dividend tax (0, 7.5%, 32.5% or 38.1%) - depending on whether you are basic/higher/additional rate taxpayer and use of free allowances. For higher rate tax payers it is usually better to be taxed for capital gains.
Also dividend income counts towards your total income and so can decrease your personal allowance for a person earning just over £100k meaning that the effective tax rate can be an additional 20%. Capital gains do not have that effect. To buy just before the ex-div date is equivalent to handing over your money, some of which is immediately handed back at the payment date, but now subject to tax! So other things being equal I would rather buy just after a dividend date than just before. The reverse is true for selling.
Or do I misunderstand something?
Hi Richard, the price drop of an ETF as it goes ex-dividend sometimes isn't even noticeable. Background price volatility (for an equity fund this is usually around 1.5% to 2% per day) sometimes washes out the drop entirely. In extreme cases where the dividend is paid annually and the yield is high then you would almost certainly see the ex-div price drop. The drop, when visible is usually a one-day phenomenon, so by the time I came to buy a few weeks later there was no sign of a price drop.
Also, I hold my funds in an ISA so I don't have to worry about capital gains tax or income tax on the funds I hold with Vanguard.
But those are great points about taxation and dividends for people who hold investments outside an ISA, thank you! Ramin.
3:26
You didn't make a mistake. Investors anticipate the dividend to come and the share price falls slightly after the ex dividend date.
explaining how the price drops on ex-divi date would cement the understanding. All other things being equal of course. That is the bit which cemented my understanding. It was confusing me until that bit was explained. It seemed unfair that someone who bought one day earlier got the divi. But the drop in price by the dividend amount (vs. what the share would have done anyway that day) made it all make sense.
Hi Lee, I wondered whether to mention that but decided against it. In the case of bonds, the price drop does happen reliably for the dirty price because the cash flows are more predictable than equity dividends. Equity isn't so clear-cut. For example, if you look at the VMID fund on June 20/June 21 2018 there wasn't a significant price drop. That's why I didn't mention it. Another issue is that equity is so volatile that the price drop is absorbed into daily volatility. Using VMID as an example if the quarterly dividend yield is, say, 3% then a quarter of that is 0.75% and that's comparable to the daily volatility of VMID which is about 0.6%. I guess if the dividend yield were much higher and paid annually then you would almost certainly see a chunky fall on the ex-div date. Thanks, Ramin.
So for VMID on jun2u0/21 a flat ish day is actually a decent rise in reality because they are getting the dividend. That's important info for the novice investor to understand. And on a real flat day which is also ex-divi day it may feel to them like a down day when it's actually flat accounting for the dividend. It's info that's vital to understanding this stuff. It's your channel though. I just figure as someone who learned this stuff recently (ish) I'd give you insight into my journey to understanding.
I appreciate you sharing the way you learned about ex-div dates. It does seem fairer that the price should drop on the ex-div day.
@@Pensioncraft On average there must be a fall, surely? Otherwise there would be free money to be made simply buying and selling a portfolio of companies either side of their ex-dividend dates. Yes, volatility may overwhelm this for any one stock, but not over a large number of stocks and over many years. Perhaps bid-offer spread is a factor that makes this strategy unprofitable. However, I would definitely expect to see a price fall, other things being equal, for a stock paying a large quarterly dividend.
In theory that's right, but if you try plotting prices for funds that go ex-div you often have a hard time seeing the ex-div fall unless the dividend yield is very high and the dividend payment frequency is low e.g. if the dividend yield is 4% and the fund pays semi-annually then the price drop will be roughly equal to the daily volatility.
Surely there is a fallacy in your last point about your timing of the purchase on the ex-dividend date - wouldn't the value of the ETF fall exactly by the value of the dividend it is paid as no right minded person would value the etf the same pre and post ex-dividend date? If not, then it is simply a money machine.
Hi 405 Brigade, Homie, you're right there would be an arbitrage opportunity if the price didn't fall on the ex-div date. But for most retail investors this effect is almost invisible in practice unless the dividend yield is very large or the dividend frequency is low so you get a big payout once per year for example. The daily volatility of most equity funds is a few percent per day and this quickly swamps the ex-div effect. Thanks, Ramin.
Good video, I personally like dividends but Terry Smith of Fundsmith does make some good points in his annual shareholder meeting videos where he relentlessly bashes dividends saying that overall it would be far more profitable for the investor if the company retained that money and used it to spur growth of the company and increase its earnings ( thereby increasing share prices )
Hi kindke that's right, Terry Smith chooses stocks for which that is true i.e. they can generate a high return on capital for retained earnings. From an index investor perspective, it shouldn't make much difference because the share price will grow in line with earnings so whether I reinvest the dividend or the company does should have roughly the same result. That assumes the companies deploy their capital in such a way as to generate earnings growth. I've parked my money in fairly safe assets so I'm looking for yield at the moment which is why the dividends matter more at the moment. Thanks, Ramin.