How does a dividend work?
I have shares in the Fidelity International fund, I was supposed to get a dividend yesterday of 3700.00 which I did but the price of the shares dropped by 2.00 and change. It looks like I wasn’t paid a penny.
What you underwent is normal in Full form efficient markets like the United States. What it means is when you sell the buyer cannot expect to get the dividend which left him or will live him if he buys after the dividend is paid. This happens during the dividend announcement times. So the dividend amount is lost on the price of the stock. In olden days Company Treassures used to do something called ‘dividend capture’. They stopped this practice after the Black Monday of 1987 since they used to do it using Index options or sometimes direct. When program trading was discontinued then this also went along with it. If someone used to do it directly with stocks then they will loose on the price in the short run after the dividend got registered.
Dividend is an ethical policy tool of transparent companies. It can be abstractly looked as the standard deviation of the Return on Investment for the past 15 years. Comapnies are bound by ethics and by welfare economic directives to pay (this standard deviation percentage as) dividend. Then ofcourse some companies pay off part of their earnings that is not required for future or next years use. Well palnned compnies make it a point to include dividend policy in their plans.
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