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Ex-Dividends
#1
Sorry dont know if this is the right place to ask this. But i'm having some trouble understanding what an Ex-Dividend is.

DHY is a high yield Div but is going Ex-Dividend. its supposed to mean who ever owns stock gets paid. But what does that really mean?

If i purchased it i get the money directly?

sorry noob question but i rather hear it from the pros. IE you guys Tongue

TRT
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#2
We were all noobs once :-)

There is a date that a company declares its stock as "ex dividend"--you must own that stock BEFORE that date to collect the dividend. Otherwise the dividend is paid to the previous owner.
The Wikipedia definition is pretty straightforward:

http://en.wikipedia.org/wiki/Ex-dividend_date.

If you purchase a dividend paying stock, the money will be paid into your brokerage account. It will show up as CASH. It can then be transferred to your bank account, or reinvested.
OR, you can DRIP (wiki that as well). Then the dividends are reinvested into the company in the form of new stock purchase(s). All but a few of my holdings are DRIP—compounding interest is the best interest ;-)

Believe it or not, wiki and Investopedia are very helpful for decoding investment “lingo.”

http://www.investopedia.com/terms/e/ex-dividend.asp

Ronn
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#3
Just to add a bit to what ronn38 already elegantly explained.

At the Ex-Dividend date 2 things usually happen:
1. The price of the stock at the opening will be lower by the dividend amount.
2. All the people that owned the stock at the close of the previous day will be marked for dividend payments.

Another date to note is the dividend payment date.
At this date all the people that owned the stock at the close of the day before the Ex-Dividend date will be paid the dividend.

Back to DHY example.
Here is what Nasdaq has to say about DHY dividend history:
http://www.nasdaq.com/symbol/dhy/dividend-history

Ex/Eff Date Type Cash Amount Declaration Date Record Date Payment Date
8/14/2014 Cash 0.024 8/1/2014 8/18/2014 8/22/2014

The Ex-Date is Thursday 8/14/2014 which means if you want to get the dividends than you need to own the stock at the close of Wednesday 8/13/2014.
On the Payment-Date 8/22/2014 everybody who owned DHY at the close of Wednesday 8/13/2014 will get $0.024 dividend for every share he owned at that time.

Example:
If you owned 100 DHY shares at the close of 8/13/2014 and then purchased another 100 shares between the open of 8/14/2014 and 8/22/2014 you will get dividend only for the first 100 shares you owned.

Example 2:
If you purchased 100 DHY shares after the close of 8/13/2014 than you will not get dividends at all.
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#4
(08-19-2014, 03:43 AM)daat99 Wrote: At the Ex-Dividend date 2 things usually happen:
1. The price of the stock at the opening will be lower by the dividend amount.
2. All the people that owned the stock at the close of the previous day will be marked for dividend payments.

Actually, IIRC, the date people are marked as getting the dividend on the corporate books is the Record Date. The ex-date is usually 2 days before to allow to settlement on the exchanges.
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#5
After reading some wiki and investopedia. I am starting to understand this @dat99 that was a pretty good explanation. but what i'm confused about is after the ex -dividend date for example 8/14/2014 those who bought before that day. Will receive their div days or weeks later. But then the cycle starts over again right? so after the payment if i were to buy stock i would receive dividends on the next ex div date?
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#6
Correct. If you buy after the ex date, you get the dividend on the next distribution.
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#7
phew thanks for clearing that up for me DW. I was like " man some other guy is gonna get the money when i risked my cash ". I got sad for a moment but sounds like we are good!
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#8
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.
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#9
good point Dan not really understanding Ex-Dividend is what lead me to think that way of purchasing only because of dates.
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#10
(08-19-2014, 10:55 PM)earthtodan Wrote: 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.

Dan, that is an awesome metaphor and so apropos. I'm gonna put that in my Notable Quotes section of my portfolio business plan. Thanks for wording it so simply and eloquently.
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