n00b question: Can I buy a stock a day before dividends issue and get my dividend?

Discussion in 'Strategy Development' started by jay42, May 25, 2005.

  1. jay42


    What would stop someone from trading twice a week or so and keep buying stocks just as they're declaring a dividend, get the dividend, then cash out and move on to the next ready-to-declare-dividend stock?
  2. MTE


    You mean stock going ex-dividend, not declaring a dividend!?

    Nothing will stop you, but what is the point?
  3. Don't forget that the stock price drops by the amount of the dividend too. You get the cash, but its a wash.
  4. jay42


    Is it really a wash? I see reports along the lines of "Company XYZ" issued a 68 cents per share dividend today. Now if I had 1000 shares, I just got a $680 paycheck.

    In that case, are you saying the company stock would suddenly drop by 68 cents a share the next day before I can even sell it off?
  5. MTE


    Yes, essentially that is the case. The stock price doesn't drop on the announcement day though, but on ex-dividend date and the latest you have to buy the stock to receive the dividend is the day before the ex-dividend.

    Now, since the stock price is affected by many different factors the stock may not drop by exactly the amount of the dividend, but still it is a wash. E.g. the stock can open unchanged, but all it really means is that it actually opened higher by the amount of the dividend.
  6. jay42



    I was hoping to get into some dividend-declaring real estate stuff, which didn't seem to drop in value upon dividend declaration.

    But if you all seem to think it's a wash, I suppose it is.
  7. MTE



    I'm not sure if you actually mean the date the dividend is announced/declared or the ex-dividend date, since you keep using the terms "dividend-declaring stocks" and "upon dividend declaration", but the stock price is affected on the ex-dividend date. The announcement date has absolutely no relevance!

    The reason that it is a wash is because the company reduces the amount of cash it has, hence the value of the company/stock drops by the amount of the payout. You either hold a stock at price X, or a dividend Y and a stock at price X-Y.
  8. Off the top of my head, these are the points you need to consider.

    You need to hold the stock by the "record date" to get the dividend. This day is usually 1 day BEFORE "ex-dividend" date.

    So if a company "announces" a dividend, that doesn't mean you get the dividend and then sell the stock at the same price you bought it. It means you HAVE to own it on a certain day, and the following day the stock is GUARANTEED to drop by the amount of the dividend (+ or - market fluctuation) the next day.

    Some people like to buy into the dividend, but a quick and easy profit is not the reason. The opportunity doesn't exist in this example.
  9. Everest


    d'ya think?

    And theres mer thinking why isn't every one just going for the easy money
  10. I guess there really is one born every minute.
    #10     May 27, 2005