What happens to share price when dividends are paid. When a company pays a dividend, the company's value diminishes by the amount of the total payout. Investors reason that the company's stock price should go down by the same amount as the dividend to reflect the company's reduced value. In practice, this doesn't always happen. Dividends affect stock prices, but not.

What happens to share price when dividends are paid

The Basics of Stock Dividends

What happens to share price when dividends are paid. New data sheds light on the fate of firms that pay shareholders less.

What happens to share price when dividends are paid


When a company pays a dividend, the company's value diminishes by the amount of the total payout. Dividends affect stock prices, but not always on the payout date. Though dividends are one of the many factors that affect stock prices, demand and forecasts for future profits also have an impact. That is the ex-dividend date. You must buy before the ex-dividend date if you want to be the owner of record on the record date.

When the ex-dividend date arrives, the dividend stock tends to drop in price by approximately the amount of the dividend per share. If a dividend stock has high demand, the price might not drop much on the ex-dividend date. Eager buyers can see the price drop as a buying opportunity because the company might have strong prospects for future profits, and therefore for higher future dividends.

The date that the dividend actually is paid to investors can be as long as a month after the ex-dividend date. On that date, the company actually makes payments for stockholders who owned the shares two days after the ex-dividend date. Many investors look at the drop in company value on the payment date as a factor that the market has already priced into the stock. The payment date is published, so anyone buying the stock before the payment date sets a price to reflect the upcoming payment.

That means the actual payment date might not result in a drop in stock price. High demand for a stock can keep the price up, even though the company value drops on the payment date. At the center of everything we do is a strong commitment to independent research and sharing its profitable discoveries with investors. This dedication to giving investors a trading advantage led to the creation of our proven Zacks Rank stock-rating system.

These returns cover a period from and were examined and attested by Baker Tilly, an independent accounting firm. Visit performance for information about the performance numbers displayed above. Skip to main content. Stock Price on Ex-Dividend Date When the ex-dividend date arrives, the dividend stock tends to drop in price by approximately the amount of the dividend per share. Payment Date The date that the dividend actually is paid to investors can be as long as a month after the ex-dividend date.

Stock Price on Payment Date Many investors look at the drop in company value on the payment date as a factor that the market has already priced into the stock. Photo Credits cash on hand image by Photoeyes from Fotolia. Zacks Research is Reported On:


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