Dividend payments

richard686

Quick question:

How long do you need to hold a share before you get a dividend?

mulronie

For shares, it's not about holding them for a certain amount of time, it's about holding them on the right date.

The "investor relations" website of the company will tell you 2 dates - the ex-dividend date, and the Record Date. E.G: Tesco

Technically you need to hold on the Record date to receive the dividend - but because shares in the UK take 2 days to settle, the ex-dividend date is the date you are interested in. If you have bought a share beforehand and hold it on the ex-dividend date, you will get that dividend; if you buy a share on or after the ex-dividend date, you won't.

Typically on the ex-dividend date, the share price will fall to reflect the fact that whoever buys it that day won't receive that particular dividend, whereas someone buying the day before would have.

richard686

mulronie wrote: »

For shares, it's not about holding them for a certain amount of time, it's about holding them on the right date.

The "investor relations" website of the company will tell you 2 dates - the ex-dividend date, and the Record Date. E.G: Tesco

Technically you need to hold on the Record date to receive the dividend - but because shares in the UK take 2 days to settle, the ex-dividend date is the date you are interested in. If you have bought a share beforehand and hold it on the ex-dividend date, you will get that dividend; if you buy a share on or after the ex-dividend date, you won't.

Typically on the ex-dividend date, the share price will fall to reflect the fact that whoever buys it that day won't receive that particular dividend, whereas someone buying the day before would have.

Thanks for that, so there would be a corresponding rise leading up to the Record date.

Presumably the drop after the ex-dividend date wipes out the value of the dividend, so you can't chase dividends, buying and selling sequentially?

bowlhead99

The theory goes that when a company has just paid (say) 2p a share out of its assets to its owners, each share will immediately worth 2p less than it was the night before, because the ownership of underlying assets represented by one share has just reduced.

You could chase dividends by buying another share that's about to go ex-div every day of the year and selling the next. You would get lots of dividends but lose a lot of capital. Plus the stamp duty and broker fees would kill you.

Most people would prefer it the other way round anyway, i.e. instead maximise capital gains and minimise income because of the more friendly tax treatment. Of course, this involves selling and buying again so it costs you in fees and duty as mentioned.

Also: the theory says the price moves by the dividend value but in reality shares can move 1-50% in a single day anyway, dwarfing the dividend effect. The divi effect on price is only "all other things remaining equal", and things never do remain equal from day to day. It's easier to see the effect with less volatile investments (e.g. preference shares or income/bond funds).

This also came up a little while back - see post 2126 and about 10 posts thereafter on this thread.

Biggles

richard686 wrote: »

Thanks for that, so there would be a corresponding rise leading up to the Record date.

No, not normally. As you say, there's no really good reason for buying them by that date, and the value of the divi is already in the shares anyway.

jimmyss1

The best way to understand dividend movements is simply to observe the price movement when a share goes ex-dividend. A whole host of them went ex-div today (Wednesdays are usually the ex-dividend day, with Friday the corresponding record day). To find shares that are going ex-dividend take a look at

http://www.upcomingdividends.co.uk/

It gives upcoming ex dividend dates for all ftse shares.

CLAPTON

It's not reaaly the case that the price of the share drops by the value of the dividend

bear in mind that the 'dividend' being talked about is the 'next' one only.

some shares pay out once a year, most twice a year and some 4 times a year so the fall depends upon the frequency of the payouts.

wesleyad

Looking at that website I see Standard life ex dividend date is today. They dropped 6% today so does that pretty much explain why?

westy22

The next final dividend payable for SL is 9.8p per share plus a special dividend of 12.8p per share (total 22.6p) which equates to about 6.1% at yesterday's share price.

jimmyss1

If you look at that website (http://www.upcomingdividends.co.uk/), the total dividend today was for Standard Life (SL.) was 22.6p and this was yeilding 6.11% at close of business yesterday. Right now Standard Life is trading about 5.8% down. So, all the fall is from that dividend.

If you click on the RNS link (next to the declaration date value) on that website, you can see that 22.6p is a special dividend of 12.8p and a final dividend of 9.8p.

richard686

Thanks everyone, it all makes complete sense!

(it was bugging me for a while last night!)