Ex divident date question

[jpg7n16]

However, if I add the expected dividend amount to my current stock position (as of today), I am ahead in actual dollars by 3%.

You're ahead 3%, because the stock is up, not because you got the dividend.


And if you waited to buy until after the dividend, you'd still be up.

Price at open after dividend: 29.76
Price at close today: 31.25

Gain if you bought after dividend: 31.25 / 29.76 = 1.05 = up 5%

And I don't think it should be taxed -- it is in ESA, kind of like ROTH, from what I understand.

If it's in a tax-advantaged account, then taxation doesn't matter. Though the discussion is still good for people who believe they need to buy before ex-div. There is no advantage, and there are possible tax consequences.

[thesimplemoneyblog]

If it's in a tax-advantaged account, then taxation doesn't matter. Though the discussion is still good for people who believe they need to buy before ex-div. There is no advantage, and there are possible tax consequences.

Yeah, we were referring more broadly to the concept of how it works and not to the particular taxation in this case (since it's in a tax-advantaged ESA).

[seen]

You're ahead 3%, because the stock is up, not because you got the dividend.


And if you waited to buy until after the dividend, you'd still be up.

Price at open after dividend: 29.76
Price at close today: 31.25

Gain if you bought after dividend: 31.25 / 29.76 = 1.05 = up 5%

Logically speaking, what you're saying makes perfect sense. But as someone relatively new to investing, how do you explain something like this?

MCD Historical Prices | McDonald's Corporation Common S Stock - Yahoo! Finance

[kv968]

Logically speaking, what you're saying makes perfect sense. But as someone relatively new to investing, how do you explain something like this?

MCD Historical Prices | McDonald's Corporation Common S Stock - Yahoo! Finance

I guess you're referring to the fact that MCD paid out a $0.77 dividend but the stock opened only $0.08 lower the next day? That was due to after/pre-market trading.

Stock prices will always be adjusted to the amount of the dividend payout, however due to trading, you most likely won't see it to the exact penny.

[jpg7n16]

Logically speaking, what you're saying makes perfect sense. But as someone relatively new to investing, how do you explain something like this?

MCD Historical Prices | McDonald's Corporation Common S Stock - Yahoo! Finance

Sample size issues. Stock was up a good amount the day after div payment. Let's look at some others dates for the same stock.

Closing 11/28: 86.52
Div: 0.77
Expected Open: 85.75
Acutal Open: 86.44

Closing 8/29: 89.65
Div: 0.70
Expected Open: 88.95
Actual Open: 88.84

Closing 2/27: 100.36
Div: 0.70
Expected Open: 99.66
Actual Open: 99.77

Closing 8/27/10: 73.99
Div: 0.55
Expected Open: 73.44
Actual Open: 73.31


I mean, where does the dividend come from? The company. And what is the stock valuing? The company. So if I had a company who just gave away $1/share of it's assets, it'd be worth $1 share less.

That's the reason that Yahoo has the "adjusted close" listed on the right, as does every other provider of historical quotes. You have to adjust the price for the dividend the stock paid out.



Sometimes the stock was going to open up anyways, sometimes not.

How would you explain this? SPY Historical Prices | SPDR S&P 500 Stock - Yahoo! Finance

S&P 500 Index
Close 12/20: 145.12
Div: 1.022
Expected Open: 144.098
Actual Open: 142.17

From: http://www.investopedia.com/terms/e/...#ixzz2IL8TEYfe

Investopedia explains 'Ex-Dividend'
A stock trades ex-dividend on or after the ex-dividend date (ex-date). At this point, the person who owns the security on the ex-dividend date will be awarded the payment, regardless of who currently holds the stock. After the ex-date has been declared, the stock will usually drop in price by the amount of the expected dividend.

[seen]

Stock prices will always be adjusted to the amount of the dividend payout, however due to trading, you most likely won't see it to the exact penny.

Sample size issues. Stock was up a good amount the day after div payment. Let's look at some others dates for the same stock.

Closing 11/28: 86.52
Div: 0.77
Expected Open: 85.75
Acutal Open: 86.44

Closing 8/29: 89.65
Div: 0.70
Expected Open: 88.95
Actual Open: 88.84

Closing 2/27: 100.36
Div: 0.70
Expected Open: 99.66
Actual Open: 99.77

Closing 8/27/10: 73.99
Div: 0.55
Expected Open: 73.44
Actual Open: 73.31


I mean, where does the dividend come from? The company. And what is the stock valuing? The company. So if I had a company who just gave away $1/share of it's assets, it'd be worth $1 share less.

I understand that the dividend payout results in a lower valued stock. It makes perfect sense, I never disagreed with any of that. Objectively however, had I bought MCD on the opening of Nov. 28 or even Nov. 27, I’d still be further ahead than I would be if I jumped in on the morning after the ex-dividend date on Nov. 29, AND I would have the dividend payout as well.

This is why I'm confused. I guess my question is, regardless of how fundamentals merit the value of a stock, if you can't always predict investor volatility of demand/volume, is it so bad to try and get in on a stock before the payout?

[jpg7n16]

I guess my question is, regardless of how fundamentals merit the value of a stock, if you can't always predict investor volatility of demand/volume, is it so bad to try and get in on a stock before the payout?

I guess my question is, regardless of the odds, if you can't predict the volatility of the roulette wheel, is it so bad to bet on red? It landed on red the last time I bet on it.


Just because it would have paid off in one instance does not mean it's a winning strategy going forward. You are just as likely to lose as to win, unless you've somehow figured out how to know when a stock will open higher tomorrow than it will close today.


The MCD play was just that, fortunate timing. You would have made money because the stock went up, not because you got the dividend. You can just as easily buy the stock at any time hoping it will go up.

But as, on average, it will open down by the dividend amount (roughly), why would you want to enter into a taxable situation you could avoid by waiting a day or two?



In an IRA (and in a perfect world), you should buy the stock when it meets your needs, not based on whether it's about to pay a dividend or not.

[Nika]

Update, I did get paid the dividend. So overall, up 4% in less than 6 weeks. Not anything major, but an all right return so far.

[kv968]

edit.