Purchasing Stocks AFTER the Dividend Payment Date

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>Is this “recovery” then due to natural stock *growth* Yes, exactly. >If recovery for many stocks is inevitable then I’m surprised I haven’t seen much discussion about investment strategies where you purchase the stock after the post-dividend drop? What am I missing? It’s not inevitable. There are plenty of stocks that slowly creep down in price over the years as they pay out dividends, but still offer decent investments. If you don’t want to be taking dividends, say because they get taxed unfavourably, than it might not be a bad idea to wait until after the ex date, it could save a little on taxes. But as far as what you’re getting for your money, it’s all the same. You can buy a $51 dollar stock and get a $1 dividend or you can wait a few days and buy a $50 stock. Any growth you see is just the earnings accumulating again, the same as would happen for a growth company.

aw1238mn

Suppose the value of the company is frozen in place, meaning the only reason for price movement is the dividend payment. If a stock regularly pays $1 per share in dividends on Dec 1st and is costs $100 on Nov 31st, the stock effectively costs $99 on Nov 31st because you will get that $1 the next day. You can think of it like a $1 rebate for purchasing the stock. After Dec 1st, the price will drop to $99 because the rebate is no longer being available, nobody will want to pay $100 for something that was worth $99 yesterday (assumption is company value is unchanged). There’s no real strategy here because you either pay $100 and get $1 back the next day, or you pay $99 the next day. The biggest differences is in taxes, with the former approach you pay taxes on the dividend and have a higher cost basis for the shares, with the latter approach you pay no taxes (because no dividend) but have a lower cost basis on the shares (pay more taxes later). edit: there could be an arbitrage opportunity here, but not for retail investors

HearAPianoFall

I monitor profitable companies that are going ex-dividend, and I watch for them to drop unfairly and well beyond the dividend amount. I consider that unfair punishment and therefore a buying opportunity. Extremely wealthy investors like dividends because most non-REIT ones are qualified for the long-term capital gains rate. I don’t have enough capital for that to matter, and so I just assume to buy on ex-dividend day if it drops enough.

OptionsAlchemy

Are you trying to figure out when to time an entry into an investment or are you trying to figure out how to capture dividends? A couple of things – it’s not the payment date that matters. It’s the ex-div date. The payment date for a dividend isn’t when the price of the stock will adjust. If you trying to time an entry – using the ex-div date really isn’t a good way since you are effectively swapping out the dividend payment for any potential adjustment in the price. If you are wanting to enter a position in a dividend paying company on its merits, waiting on the exdiv date may not be the best time. Also – bear in mind that the type of dividend payment can affect how the stock will price on exdiv dates, a special dividend depending on why that dividend is being paid can have material impact on the value of the company and impact the stock price. if you are asking about dividend capture techniques – those are usually done with options. For example, buying the shares before exdiv and selling equivalent itm calls.

greytoc

It’s not the same, but you can think about it like bond. You know I’m going to pay you $100/year for 30 years on 1 DEC. Before 1 DEC, there is $100 in value for that year. After 1 DEC, I pay you the $100, and that value is captured – you have it, so the underlying asset is inherently worth less. For many intents, buying it before or after payout is little difference. Buy before, you get the payout amount, and the holding is worth an amount less equal to the pay out. Buy after, you don’t get the payout amount, but the holding cost less based on the now reduced value. In both cases, the payout plus the holding cost are effectively equal. The main impacts, in my view: 1) Taxes. Those payout are often taxed as regular income. If I were about to buy something with a dividend payout in like a week, I might wait (if it’s a non-trivial size purchase). 2) Liquidity and the appearance of gains. This is most just smoke and mirrors. As to whether something goes up or down after the payout, that’s market forces and performance of the company/asset. Can’t guarantee the outcome.

ChickenTenders4Ever