Hi guys, I’m trying to figure out ex-divs. From what I understand, the ex-dividend price decrease by the amount of the dividend as soon as it goes from pw to px. However, in the formula, the dividend is included and the book says that the investor receives the dividend. How does he/she receive it? On the day a share goes ex-div, does it receive the dividend or is it hypothetical because the price dropped by that amount?
The shares trade ex-dividend two business days before the date of record because all equity trades settle T+3 meaning the actual shares change hands 3 days after the trade is placed. So 2 days before the date of record it goes ex-div because you will benefit from receiving the dividend. To the second part the dividend can be paid any time after the date of record and is a cash distribution. You could say it is hypothetical if that helps or say that it is a very short term account payable for the company or AR for the share holder but that might complicate things. Hope this helps.
The day the dividend is declared is not the day the investor receives his dividends. Usually the investor receives the dividend 2-3 months later. The price drops because the stock is not anymore entitled to this dividend.
tmortonsmith Wrote: ------------------------------------------------------- > The shares trade ex-dividend two business days > before the date of record because all equity > trades settle T+3 meaning the actual shares change > hands 3 days after the trade is placed. So 2 days > before the date of record it goes ex-div because > you will benefit from receiving the dividend. This is correct. Ex-div day is the day you no longer can receive the dividend. If it says dividend payable to holders of record on July 22, then count July 22 as one day, then July 21st as a second day, and July 20th as the ex-div day (assuming no weekend days in between). If you buy it on July 19, you get the div. From July 20 onwards, no chance. Having said that, there is no free money anywhere here, whether you get or not get the dividend, it’s all the same.