Dividends and stocks?

Question

I would like to know if stocks paying the highest dividends go down in price by the same amount paid thru the dividends?

For example, if a stock trade for $100.00 and pays a dividend of $3.00, would the price decrease by $3.00 to reflect that dividend just being paid?

Thank you

Philippe

Answer 1

Yes, the stock price is adjusted down by the amount of the dividend...AFTER taking into account normal market forces.  For example, using your scenario, the stock may open at $99 on the ex-dividend date rather than $97, but that just means it would have normally opened at $102 had there been no $3 dividend adjustment.

To answer your next question...that's right, you gain nothing with the dividend.

Answer 2

There is a strong relationship when the dividend is big.  In your scenario the price would likely go down a little though not necessarily the $3.  In smaller dividend stocks the relationship is weaker and it is less likely they would go down based on the dividend.

Answer 3

Technically speaking, yes.  If you are in the market to purchase the stock for $100 prior to the ex-date, you could wait until the ex-date and only pay $97 for the stock.  However, the factor that would most come into play is the demand for the stock.  That's why you don't exactly see a decrease in price by the exact amount of the dividend.

Here's a good article about dividends and the dates:

http://www.investopedia.com/articles/02/...

Ron

Investment Advisor