Where Does the Dividend Go?

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gigaboy
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Joined: Wed Oct 09, 2019 8:48 am

Where Does the Dividend Go?

Post by gigaboy » Wed Oct 09, 2019 8:51 am

A sorta hypothetical question:
- a financial advisor what me to sell shares of stock (PG) within the next few days, before the ex-dividend date. Which means I wouldn't get the dividend check. Where does that dividend money go to? The advisor? Back to PG?

bloom2708
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Re: Where Does the Dividend Go?

Post by bloom2708 » Wed Oct 09, 2019 10:14 am

If you sell, that means someone else bought the shares.

The new owner of the shares on the ex dividend date gets the dividend.
“People don’t want advice, they want confirmation.” Unknown

increment
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Joined: Tue May 15, 2018 2:20 pm

Re: Where Does the Dividend Go?

Post by increment » Wed Oct 09, 2019 10:17 am

bloom2708 wrote:
Wed Oct 09, 2019 10:14 am
If you sell, that means someone else bought the shares.

The new owner of the shares on the ex dividend date gets the dividend.
And presumably the new owner should have been willing to pay a little more for the shares on the expectation of that dividend.

Topic Author
gigaboy
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Joined: Wed Oct 09, 2019 8:48 am

Re: Where Does the Dividend Go?

Post by gigaboy » Wed Oct 09, 2019 10:48 am

Thanks! :beer

Silk McCue
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Re: Where Does the Dividend Go?

Post by Silk McCue » Wed Oct 09, 2019 10:56 am

Welcome to Bogleheads!

When the dividend is declared the stock price reduces by the same amount that very day. Dividends aren’t gifts from the company but payouts from the value of the share. You lose nothing by selling before the ex-dividend date.

Cheers

alex_686
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Re: Where Does the Dividend Go?

Post by alex_686 » Wed Oct 09, 2019 11:00 am

increment wrote:
Wed Oct 09, 2019 10:17 am
bloom2708 wrote:
Wed Oct 09, 2019 10:14 am
If you sell, that means someone else bought the shares.

The new owner of the shares on the ex dividend date gets the dividend.
And presumably the new owner should have been willing to pay a little more for the shares on the expectation of that dividend.
A bit more than "presumably". There have been many robust statistical tests on this subject and the pro rata amount of the dividend is baked into price so you will effectively get a portion of the dividend.

YogurtRunner
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Re: Where Does the Dividend Go?

Post by YogurtRunner » Wed Oct 09, 2019 12:11 pm

Dumb question: But does it work the same way for ETFs and Mutual Funds?

Reason I ask is I re-balanced my taxable account recently and then kicked myself when I realized I should have waiting for one of the dividends to pay out to me. If the price dropped in lockstep, then it won't matter.

aristotelian
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Re: Where Does the Dividend Go?

Post by aristotelian » Wed Oct 09, 2019 12:14 pm

Since the dividend hasn't been paid, it would be reflected in the market capitalization of the stock, which includes the company's cash assets. If you held through the dividend date, you would receive the dividend but a lower capital gain.

alex_686
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Re: Where Does the Dividend Go?

Post by alex_686 » Wed Oct 09, 2019 12:26 pm

YogurtRunner wrote:
Wed Oct 09, 2019 12:11 pm
Dumb question: But does it work the same way for ETFs and Mutual Funds?

Reason I ask is I re-balanced my taxable account recently and then kicked myself when I realized I should have waiting for one of the dividends to pay out to me. If the price dropped in lockstep, then it won't matter.
From a investor's perspective it works the same way.

As a former fund accountant the behind the scenes accounting is a bit more tricky, but that is because funds are on a accrual accounting system, there is a difference between the cash coming in and the dividends that are being paid out, and that the dividend payments from funds are entirely driven by IRS reporting requirements. But these are all deep in the weed nuanced issues. Nothing that a investor could exploit expect from a tax timing and character issue, and nothing that the the average investor need worry about.

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grabiner
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Re: Where Does the Dividend Go?

Post by grabiner » Thu Oct 10, 2019 9:16 pm

YogurtRunner wrote:
Wed Oct 09, 2019 12:11 pm
Dumb question: But does it work the same way for ETFs and Mutual Funds?

Reason I ask is I re-balanced my taxable account recently and then kicked myself when I realized I should have waiting for one of the dividends to pay out to me. If the price dropped in lockstep, then it won't matter.
In a taxable account, you break even on the price, but there may be tax issues which make the deal not break-even. If you wait for a $1000 dividend and then sell, your capital gain is reduced by $1000, so you break even if the capital gain and the dividend are taxed at the same rate, but you come out ahead if you avoid a short-term gain and receive a qualified dividend.

It is slightly more important in the other direction. If you buy a fund and it immediately pays a $1000 dividend, you have the same amount of money, but you owe tax on the dividend. Thus it is desirable to wait to buy a fund before it pays a large dividend. (But for stock funds paying quarterly dividends, a $1000 dividend implies a $200K purchase, and you expect to lose the $150 tax bill just from sitting out of the market for a week to wait.)
Wiki David Grabiner

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