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    Question about Dividends

    I have been curious about something that I have never actually seen addressed. I know that with stocks that pay a dividend, they have an ex-dividend date which you must have money invested in the stock by that date to be eligible to receive the dividend. The dividends are paid out a week or two or so later depending on the company.

    If I understand this correctly, if you buy shares of a stocks a day or two before that ex-dividend date (that is announced long before it happens). Do you have to leave those stocks intact until the dividend is paid out if you were invested on the ex-div date? Seems like for those that have a great deal of money to buy stocks that they could buy a large chunk of the stock one-two days before the ex-div date. Sell them a day or two later and they would still get the dividend when paid out. They could take the dividend on many stocks over and over with the same say, $1K. Rinse, repeat. Or does it work more like a bank, where to get the interest you must have left the money on deposit for a certain amount of time to receive the interest? Or in this case until the actual date that the dividend is paid out?
    Gailete
    http://www.MoonwishesSewingandCrafts.com

    #2
    The problem with dividend arbitrage is that once the dividend is paid, the value of the the stock typically drops by the amount of the dividend. The drop usually happens on the day the stock goes ex-dividend.

    The ex-dividend date (ex-date) is the date that the person who holds the stock will be will be awarded the dividend payment, regardless of who currently owns the stock.

    So if the stock is worth a buck, and the dividend is 10 cents, on the day the stock goes ex-dividend, the stock would be worth 90 cents.

    This happens because, all things being equal, the value of the company drops by the amount of cash that is taken out of the company.
    Last edited by james.hendrickson; 12-15-2017, 07:33 AM.
    james.c.hendrickson@gmail.com
    202.468.6043

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      #3
      Thank you for answering. All the stocks I own are dividend paying ones, but I never noticed a drop on that day. I will have to pay more attention to that.
      Gailete
      http://www.MoonwishesSewingandCrafts.com

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        #4
        The drop doesn't always happen, but that is pretty much the textbook answer why it is hard to make money from dividend arbitrage.

        You might be better off just buying really high quality stuff and holding it for 20 years.
        james.c.hendrickson@gmail.com
        202.468.6043

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