does SP normally drop by divi price on ex-div date?

longwalks1

As a rule of thumb, does a shares price usually drop by the dividend amount on, or straight after the ex-dividend date?

Thanks

CLAPTON

it drops once the share is no longer entitled to the next dividend payment

Colin_Hunt

If you could strip out all other pulls then yes.
Some shares creep up prior to xd as "some" people buy for the dividend payment.

longwalks1

Cheers people, had a little dabble at shorting 2 shares that went ex-divi today, but was charged the divi amount by the spread betting firm - go figure
Broke even so not all bad. I took the trades out yesterday, how would I find out when the divi amount is added to the buy/sell price when shorting?

Ifts

Here is one example of a share that I hold - https://www.share.com/find-investments/advanced-finder/company-overview/easyjet/charts/3092/?chart_action=chart_draw&action=charts&id=&style=&username=&ac=&cname=&csi=14263&chart_primary_ticker=LSE%3AEZJ&chart_time_period=1_month&primary_chart_type=stack_line&chart_comparison_index=&chart_comparison_sector=&chart_comparison_tickers=&chart_moving_average_1_type=none&chart_moving_average_1_period=&chart_moving_average_2_type=none&chart_moving_average_2_period=&chart_moving_average_3_type=none&chart_moving_average_3_period=&chart_annotations=none&chart_overlay_indicator=&chart_lower_indicator_1=&chart_lower_indicator_2=&chart_lower_indicator_3=

Easyjet had been creeping up until today (33.5p divi + 44.1p special divi payable 21/3/14) but the share price dropped by 91p after going ex-dividend today.

Glen_Clark

Jumping into shorting and spread betting when you don't even know how the dividend affects the share price reminds me of the saying 'fools rush in where angels fear to tread'

bowlhead99

britishboy wrote: »

had a little dabble at shorting 2 shares that went ex-divi today, but was charged the divi amount by the spread betting firm - go figure

The figuring, goes like this:

If you make a spread bet you are taking a virtual position in an underlying instrument. If you were long, you would expect your returns from one day to the next to reflect what a real shareholder would get.

Say you have bought the share in the real world and plan to hold it until the next quarter end. After a month or so, the comany announces it is going to give some of its profits directly to its shareholders: 50p a share. A few weeks later, on the announced date, the share goes ex-dividend, meaning that if you sell a share from that point on, you are selling it without the right to receive that 50p dividend (because the company has already looked at its share register and decided who to give the 50ps to).

As the shareholder, all things being equal, your total value the morning it goes "ex" is exactly the same as it was at the close the night before. But the night before, you had a share which people can buy and sell on the market which represents ownership of the company's net assets and future profits AND comes with the right to receive a 50p dividend later that quarter - let's say the 'total package' was valued at 951p. The morning after, you still have the share but it can't be sold with dividend rights because the company is already preparing a separate 50p cheque to send to Mr B. Boy. If nothing else changed, the market values the standalone share at 901p, which is what someone would pay for that reduced package of rights. As the shareholder you have a share worth 901p and a 50p debt from the company which they will send you shortly; no value loss.

So, if you were making a 'buy' spreadbet at the start of that quarter at 925p, and the share had risen to 951p by the middle of the quarter, you would be in positive territory by 26p. You would be pretty annoyed if the company then started writing dividend cheques to its owners leaving the market value down at 901p and your spreadbet company took those dividend cheques for itself and said "haha, you bet the share would go up in value, but it seems to be down from 925 to 901, so I'm afraid you owe us 24p". You would be livid, because the real owner of the share had made money (his total value doesn't change on xd date) while your profit turned into a loss on the spreadbet.

So, they adjust your bet position to accommodate this; they now say you have a bet on 875p instead of 925p, so you're in positive territory at 901p not lossmaking.

You were on the sell side and shorting so the same adjustment for you will ensure you don't get free money from nowhere.

They do similar adjustments to bets on the FTSE100 indexes, typically adjusting weekly at close of play Tuesdays when the constituent members go ex-Div on the London stock exchange (i.e. trading is ex-div on Wednesday because the record date for share distributions is a Friday and with 3-day settlement for trades, you can't trade on Wednesday and get on or off the share register by Friday, so Wed trades are ex-div). For international shares or indexes it will be different depending on the record dates and settlement timescales.

If spreadbet firms could not make these adjustments, imagine the carnage when a company splits each of its £10 shares into 100, 10p shares; splits and consolidations happen every so often. Everyone betting on a bigger share price by the end of the quarter would lose out because the headline price in the market is much lower. But the value has not changed so the only way to handle it is to adjust everyone's bets.

Broke even so not all bad. I took the trades out yesterday, how would I find out when the divi amount is added to the buy/sell price when shorting?

Read the help files or FAQ on your spreadbetting firm's website. It will be linked to the ex-div date.

You can see which shares have the XD flag on them when looking on the Londonstockexchange website or your other favourite listing services. If you want them in advance there are various sites that put lists together, such as http://www.exdividenddate.co.uk/

No idea how reliable or comprehensive that one is; for the shares I'm interested in, I read their RNS announcements or look at their websites to find out this kind of stuff. Given that going XD does not affect your total value (whether for real shares or spreadbets) there is not a great need to have a big list of all companies with XD coming up, unless you are particularly trying to catch or avoid dividends versus capital gains.