Dividend Stripping

October 9, 20167:48 pm

People buy stocks just before the Ex dividend day & sell is after that just to receive the Dividend in their account. Lets understand the the important dates with respect to dividends.

Ex-Dividend Date:

Date by which a buyer needs to have bought shares(must keep in mind to buy 2-3 days before as settlement takes 2 days) in order to be entitled for the dividend

Record Date:

When company checks who all are entitled for dividend

Payment Date:

When the bank accounts are credited

After the Ex-dividend day, share price fall in equal amount to the amount of dividend distributed.

The logic for the drop in price is that the a part of the value is being transferred from company’s bank account to shareholders account.

There is another aspect to it that speculator betting on Ex-dividend day that the share price will drop but its not 100% correct. In case the market is sharply up, it might push up the stocks as well.

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The diagram shows some information regarding Dividends.

Can investors easily exit after ex dividend date?

Not all the time.
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Strides which had sold its subsidiary Agila to Mylan for an all cash deal for $1.6bn, gave $550mn(pre-tax)

dividend to its shareholder.

Although, the shareholders got Rs 500 as dividend but the price also fell by the Same amount.

So if the speculators have sold the stock after dividend day, they would not have gained anything. The price of the Stock dropped from Rs 882 to Rs 332, although the dividend will be credited to their account.

In order for the speculators to make some real benefit,they had to wait for quite sometime before the price reach back to the intrinsic value.

author-avatar

Shekhar Yadav

I am a full time stock market investor. The blog is an extension of my research, thoughts & opinion. Please don't consider anything on this website to be an investment advise.

2 Comments

  • Chanchal Kumar says:

    The dividend stripping happens mainly to offset the capital gains.The individual playing it will pocket the dividend & immediately sell it .The drop in share price will help to claim capital loss and help in offsetting some existing gain.

    I don’t think people using this strategy hold on to shares post receving the dividend.Please highlight, if you think i missed anything.

    • mm admin says:

      See usually the dividend is a very small amount compared to capital gains. I dont think things are these complicated or one would put in so much effort to offset such minor profit.

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