buying around dividend time

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stocknoob4111
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buying around dividend time

Post by stocknoob4111 » Fri Feb 16, 2018 4:23 pm

Just wanted to clarify what are the points to keep in mind when buying into a fund around the dividend date so that one can receive the dividend? As I understand it, in order to receive the dividend you have to buy the fund/stock before the ex dividend date. Normally the ex dividend date is a few days before the distribution date? For instance, VOO paid dividends last year on March 22, does that mean they will do so again around the same date this year as well? If not, where/when is the ex dividend date published?

Also, I read the share price would temporarily go up by the amount of the dividend and go down by the same after the distribution. Which date does it go up and which date does it return back to it's original level?

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Pajamas
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Re: buying around dividend time

Post by Pajamas » Fri Feb 16, 2018 4:28 pm


alex_686
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Re: buying around dividend time

Post by alex_686 » Fri Feb 16, 2018 4:28 pm

stocknoob4111 wrote:
Fri Feb 16, 2018 4:23 pm
Just wanted to clarify what are the points to keep in mind when buying into a fund around the dividend date so that one can receive the dividend?
First, why do you want to buy the dividend? A stock or mutual fund's price drops by about the same amount as the dividend. In a taxable account you have to pay taxes on the dividends but you don't get the benefit. In a tax advantage account it does not matter.

Second, yes, stocks and funds generally pay out about the same time each year. No law or regulation requires it. It is their habit. Except for the year end distribution, which is required for a mutual fund.

livesoft
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Re: buying around dividend time

Post by livesoft » Fri Feb 16, 2018 4:29 pm

It won't go up just before the dividend. Where did you read that? Got a link?

Since VOO is a collection of stocks and those stocks pay dividends, VOO gets the dividends of those stocks whenever they pay them and thus those dividends are being accrued all the time and reflected in the NAV of VOO. Of course, VOO does not trade at its NAV (usually), but everyone knows what the NAV is and can decide for themselves whether the premium / discount to NAV of the trade price is worth what they want to pay.

Anyways, there is no way to lose money around the dividend time except to pay taxes. And by the same token there is no way to make extra money around the dividend time.
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stocknoob4111
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Re: buying around dividend time

Post by stocknoob4111 » Fri Feb 16, 2018 5:02 pm

alex_686 wrote:
Fri Feb 16, 2018 4:28 pm
First, why do you want to buy the dividend?
I would not want to "buy the dividend", therefore my understanding is that I would buy into the fund before the ex dividend date, before the fund price falls, so that I am the beneficiary of the dividend.

alex_686
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Re: buying around dividend time

Post by alex_686 » Fri Feb 16, 2018 5:15 pm

stocknoob4111 wrote:
Fri Feb 16, 2018 5:02 pm
I would not want to "buy the dividend", therefore my understanding is that I would buy into the fund before the ex dividend date, before the fund price falls, so that I am the beneficiary of the dividend.
I would point to Livesoft's post. This is a non-exploitable hack. You buy before the dividend, you get the dividend, the stock drops by that dividend. No value is created. It violates theory that there is some hack to get free money. We have historical empirical studies showing the slight rise of stock prices from quarter to quarter and then a sudden fall that matches expected dividend rates and interest rates. Thanks to options, we can see that an exploit has been arbitraged away for individual stocks for all dividends for the next 2 to 3 years.

Sorry, but this is a dead end.

livesoft
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Re: buying around dividend time

Post by livesoft » Fri Feb 16, 2018 5:20 pm

stocknoob4111 wrote:
Fri Feb 16, 2018 5:02 pm
I would not want to "buy the dividend", therefore my understanding is that I would buy into the fund before the ex dividend date, before the fund price falls, so that I am the beneficiary of the dividend.
What you just wrote that you want to do is exactly the definition of buying the dividend. Maybe you have a typo though? Change the word "before" to the word "after" and you would not be buying the dividend.
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stocknoob4111
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Re: buying around dividend time

Post by stocknoob4111 » Fri Feb 16, 2018 6:52 pm

I am reading this article here: https://www.investopedia.com/ask/answers/137.asp

It states the stock price will decrease ON the ex dividend date. That seems to imply that as long as one buys the stock before the ex dividend date they will gain from the dividend?

Correction - think I understand it now... the stock will drop but it will not go back up. I thought the dividend was in addition to regular returns but rather is part of the appreciation of the stock or fund and the distribution comes out of it.
Last edited by stocknoob4111 on Fri Feb 16, 2018 7:03 pm, edited 1 time in total.

Joe_R95
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Re: buying around dividend time

Post by Joe_R95 » Fri Feb 16, 2018 7:06 pm

The stock drops by the amount of the dividend, and you get paid the dividend. Its a wash, but in a taxable account its a taxable event so its better to buy more of the cheaper shares for the same money by buying after its paid, and not have to pay the taxes.

bkweathe
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Re: buying around dividend time

Post by bkweathe » Fri Feb 16, 2018 7:07 pm

Noob,

Yes, you would gain the dividend. However, the price of the stock would go down by about the same amount.

Some of the money you spent to buy the stock would come back to you. The problem is that, in a taxable account, the amount that comes back would be taxed as a dividend. In a tax-advantaged account, it wouldn't matter.

Suppose a stock is selling for $10/share & nothing is happening to drive it up or down (not realistic, but it makes the example easier to understand). You buy 10 shares the day before the ex dividend date. The next day, they pay $1/share (again, not realistic, but it makes the example easier). The price would drop to $9 & you would get $1/share. So, you still have $100, right? 10 * $9 + 10 * $1. However, if this is in a taxable account, you owe taxes on the dividends. If you had waited a couple of days, you could have bought the stock for $9 and not had to pay taxes on that dividend.

In a taxable account, buying the dividend is not a good thing!

Brad

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StevieG72
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Re: buying around dividend time

Post by StevieG72 » Sat Feb 17, 2018 6:32 pm

It doesn’t matter if you purchase prior to dividend or after dividend is distributed.

There is no benefit nor is there a detriment either way.
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bkweathe
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Re: buying around dividend time

Post by bkweathe » Mon Feb 19, 2018 10:21 am

StevieG72,

You wrote:
It doesn’t matter if you purchase prior to dividend or after dividend is distributed.

There is no benefit nor is there a detriment either way.
It often DOES matter in a taxable account because you might have to pay taxes on the dividend.

Brad

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