Do you know that dividends can affect stock price? Don’t worry if you don’t, I’m here to let you know and for those who knows already, it is my pleasure if you can add more insights (comments) if ever I miss some points for the benefit of everybody. Thank you in advance.
How dividends affect stock price
If the company declares a dividend payment that is higher than expected or when the dividend yield is higher, market sentiment may shift causing the stock price to rise, on the other hand if the declared dividend payment is lower than expected, market sentiment may shift causing the stock price to drop.
Price changes on declaration day
As I observed, almost all the time when a company declaring a dividends, its stock price will tend to rise. The stock price will usually continue to increase until the trading day before the ex-date. However, there are several company’s declaring a dividends but their stock price does not fluctuate in response to the declaration.
Price changes on the ex-dividend date
Usually, the stock price is reduced by the amount of the dividend payment on the ex-dividend date. For stocks with small dividend payments, you may not even notice the decrease, it looks like a normal trading day activity. However, for bigger dividend payouts, it can be more noticeable, most especially if the company issued the STOCK DIVIDEND.
The Ex-dividend date is the date where many Newbie trader got disappointed due to the huge decrease of the stock price whenever a Stock dividend was issued. Approximately, if the company declared 20% Stock dividend, expect a 20% drop of the stock price on this date. There is no reason to worry when a stock price drops. This ex-dividend date effect actually works to maintain your investment value.
As I mentioned in my previous blog, some company’s pay dividends quarterly. Hence, four times a year that the stock price may drops by the amount of the dividend. However, if you look at the stock price over time, you will not see the loss in the stock value due to the ex-dividend price drops. After ex-dividend, the stock price will eventually recover, although the actual recovery may be hard to spot in the daily price swings of the stock market.
So, how do you feel during Ex-dividend date? I assure you, nothing to worry. The ex-dividend date effect is temporary.
Thanks for reading.