X Dividend

[Lord Lister]

Hi Everybody, first post and new to trading.

When a company goes x dividend it seems to effect the price downwards (limited experience observation) why is this? what does x dividend mean? and is this an easy trading opportunity?

Are my observations accurate or are these silly questions?

Thanks

 

[Skimbleshanks]

Welcome aboard.

Ex-dividend is the correct expression, and it means 'without dividend'.

As an example, if a company's stock is trading at 200p per share and it declares a dividend of 20p, you may see the share price drop to trade at 180p to take account of the fact that each share will also receive a cash payment of 20p.

The dividend is payable to all shareholders who hold the stock on a qualifying date, and after this the stock goes 'ex-dividend'. So if you buy shares in a stock which is ex-dividend you will not be entitled to receive the dividend declared, but you will be entitled to receive future dividends as long as you hold the stock on the qualifying date for the payment of the next dividend.

 

[Lord Lister]

Thanks Skimbleshanks.

So does that mean if you know a stock is going ex dividend tomorrow, it's worth going short on that stock?

 

[Skimbleshanks]

No.

My understanding is that because you borrow to short you are due to pay back the price of the stock plus the dividend amount. So I cannot see an advantage in shorting a stock the day before it goes ex-dividend. But I'm not a UK stock trader, so I may be wrong and if so, I'm sure others will correct me.

 

[blackcab]

The divi system works so that you generally don't get to profit from playing it. If you hold, you get the divi. If you short the drop you have to pay the divi. If you go long the drop you don't get the divi and you don't get a guarantee the price will recover immediately.

 

[Racer]

Sometimes div plays work but it depends on the market.. if is bearish short the share before the div... pay the div and the share goes down more than the div. and vice versa for bullish
Have done that on several occasions and it has paid off

 

[Lord Lister]

What about on an SB platform? You wouldn't have to pay the dividend but the price is still likely to drop?

 

[Racer]

You do because they allow for it in the price they give you..

 

[Lord Lister]

Ahhh, thought that might be a bit easy. Thanks for your help, this is a superb site and an excelent forum, I am really please I stumbled across it.

Back to reading through the threads.

 

[ColinM]

X-Dividend

If a share has been marked as ex-dividend and has the start marker date of 2/2/05 and end marker date of 28/2/05 do I only need to hold the shares on the 2/2/05 and when can I sell these but still receive the dividend