08-20-2014, 10:28 AM
(08-19-2014, 10:55 PM)earthtodan Wrote: Keep in mind, no money or value is created when a company pays a dividend. Part of the company's cash gets transferred to shareholders, and the value of the company (the market cap) gets reduced by a similar amount at that time. In fact, brokers automatically adjust bid/ask limit orders downward overnight by the amount of the dividend payment. Any price change before and after the ex-dividend cutoff incorporates this difference. The point is that there is no advantage to buying a stock before or after the ex-dividend date. I admit there is a psychological draw to buying a stock in time to receive a dividend, but that urge has to be unlearned.
Over the next quarter, the amount of the dividend (or the next expected dividend payment) gets built back into the price. Of course you can't watch this happen because the price movement over 3 months totally obscures it. But that is the beauty of dividend investing. While the dividend itself is merely a rearrangement of equity, over time it's more like owning an apple tree. The tree grows the apples back again and again and again, and the theoretical value of the tree doesn't change just because of when the apples are about to fall.
My point here is, understand ex-dividend but don't let it factor into your buy timing.
Very well put, earthtodan.