Thursday, May 7, 2015

What Exactly Happens For The Dividend Stock Price On Ex-Dividend Day

Dividend Stock
Dividend is one of the key components for most income and value investors, it plays a major part in the compounding effect if we were to re-invest the dividend. Personally, when I choose a stock to invest, dividend yield is definitely one of the key consideration. 

When comes to dividend stocks, there are a few key dates that we absolutely need to get familiarized with i.e. CD (Cum-Dividend Date), XD (Ex-Dividend Date) and Payment Date. Today, I would like to talk a little bit about XD (Exclude-Dividend Date)

When a stock is trading at XD (usually 2 days), it means that any purchase during these 2 days will NOT be entitled to the upcoming Dividend payout. On the first day of XD, the stock price is adjusted downwards (by the Exchange) with the equal amount of the dividend to be paid. For example :

On 04/05/2015, Stock A is closed $10 ; 
[Dividend declared is $1]

On 05/05/2015 (first day of XD), Stock A will be adjusted downwards to $9 (10 - 1) as the opening price, even before any trading 
[Hence, trading will usually hovering around this price when it closes for the day]   

With this in mind, for a long term dividend investors (i.e. those intended to hold on to their stocks for years), it might make better sense to buy stocks on XD (when it is cheaper), what do you think? Personally, I used to buy stock at least a couple of weeks before CD as most stocks are trading higher during CD.



  1. Otherwise Oracle or Microsoft will be selling Market Wizard version 12 (2015 edition)

    1. Cw8888 : Totally agree with you.. But the first step of stock price adjustment (downwards) on XD by the exchange seems to be pure math to me.. Afterwords, it is at the discretion of the market sentiment.

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  3. Hi Richard,

    Have u seen prices closing higher after xd? Buying after xd is not a good strategy lah. Well, the best time to buy in has nothing to do with the dividends. When it reaches your target price, derived though FA or ta, then u buy loh.

    That being said, there's a high chance of a stock rising to the dividends declared about 2-3 mths before xd. So u sell before they declare xd, so u get the 'dividends' faster. A friend discovered this strategy and it seems to work for him. He back tested it also.

    1. LP : thanks for the comment, I think your friend's approach seems to make sense...


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