Dividends payment dates

Eco_Miser

xrjtg wrote: »

A public company exists to manage all the money that they raised during their initial share sale. Whenever it has cash it has two options: it can invest money into the business, for example by hiring more staff or buying new machinery, in the hope of bringing in more money in the future; or it might decide that the money can't be usefully invested in the business, in which case it will be returned to shareholders in the form of a dividend.

Dividends are mainly about sharing out the profits, not returning the inital subscription.

xrjtg wrote: »

In either case the money has always belonged to the shareholders, so the total value of shares held and dividends paid would remain constant for any business existing in a vacuum, unaffected by external factors.

But that's not all that's going on. The company is trading and making a profit. That profit belongs to the shareholders, so the price of the shares rises gradually over the period from one ex div to the next, reflecting the added worth of the company, and the shareholder actually gets richer. Then the company distributes (some of) the profit to the shareholders and the share value falls. The shareholder is just as rich as before the distribution, but now has some of that wealth in cash. (Ignoring the lag between going ex div and getting the dividend.)

xrjtg wrote: »

I think that's what you understood by my original post, and if there is, as you suggest, a general trend for prices to rise in the run up to an ex div date, then I can't explain it. Such a predictable movement in prices should be removed from the system by traders.

Prices rise in the run up to the ex div date because the company has actually increased in value by the net profit they made and have just announced.