I’m new to investing but at considering buying some shares for my ISA in Legal and General who’s ex-dividend date is Thursday, I believe. Is it as simple that so long as my money is invested prior to the ex-dividend date then I will receive the dividend?
Your understanding is correct
The ex-dividend date for stocks is usually set one business day before the record date. If you purchase a stock on its ex-dividend date or after, you will not receive the next dividend payment. Instead, the seller gets the dividend. If you purchase before the ex-dividend date, you get the dividend.
How long do you need to hold the shares to get the dividend payment?
Let’s say the ex-dividend date is Wednesday.
Technically you can just buy a stock a few seconds the day BEFORE the ex-dividend date (Tuesday) and then sell it first thing in the morning of the ex-dividend date (Wednesday or whatever the next business day is) and you would still receive the dividend.
I bought Jupiter fund management plc yesterday and the ex dividend date is tomorrow. So if I sell them Thursday I get the dividend?
Just a word of warning: the obvious strategy is to hop around buying one stock to get its dividend, holding it for a day or two, then selling and buying another one to get its dividend, and so on. Unfortunately, the strategy doesn’t work. Normally a stock’s price drops on the day it goes ex-dividend by an amount that is equal to the dividend (plus or minus whatever other factors are pushing the price up and down as usual). So if you buy just to get the dividend and then sell, you’ll get the dividend, but you’ll have to sell the stock for less than you paid for it, by an amount that cancels out the gain from the dividend.
Also, keep in mind that the dividend is typically paid out about a month or so after the ex-dividend date. You don’t have to still be holding the stock, but you will have to wait a while for the money to arrive.
Ah! So I bought 1113 shares at £2.87 each.
What price would the price need to drop below for me to sell at so as not to make a loss. The dividend is 5.77%
Well, this will be an interesting experiment! The percentage figure that you said is the annual dividend. They pay dividends twice per year (not exactly half and half for each payment) and the actual amount to be paid is, I think, 12.2p per share (looking at Jupiter Fund Management (JUP) Dividend Yield - 5.96%). So I expect the share price will probably drop by 12.2p when the market opens. Let’s see what happens! Good night…
edited to correct the ex-div date, which is not ‘tomorrow’ from when this was written
Using figures rounded to the nearest pence to keep things simple:
The current share price is £2.94.
The dividend is £0.13 per share.
When the ex-div date arrives the share price will drop to £2.81.
The share price loses the price of the dividend because the company must then pay that amount to its shareholders; it no longer owns that money so the company is worth less.
This is ignoring other factors which influence the price (good news, bad news, rumours, sentiment, etc).
You just take the dividend off the share price.
I think the ex-div date is Thursday, not Wednesday (Jupiter Fund Management Plc (JUP) Dividends) so hang on until then if you want to collect the dividend.
It is worth remembering that dividends can be a very mis-leading incentive Although it can be a great way to invest it may not be the best.
A good example is the life insurance adverts that give you a free voucher on signing, yes that’s nice to spend but a cheaper policy would have been better in the long run
I read somewhere in the forums before, that a person who chased the dividends and thought he was up lots was in reality paying many fees or % to move shares for dividends and they went down in price after divi payments as people mentioned above.
In short he would have made more money in a long term stock with no dividend or even one with a dividend and sticking with it
Legal & General are a quality company so one to hold on too!
Also, with commission-free trades and fractional shares, you can essentially make your own dividend stocks by just investing in the best companies and selling a fraction periodically.
Looks like @rivorson got the sums right! The drop at market close yesterday did bring the price down to exactly what was predicted.
The dividend, which you’ll receive in about a month, will compensate you for the share price drop, or the other way around. The stock price will continue to wander up and down from here…
Yep your right. Big drop in price today!
The price is irrelevant, the dividend is not based on it but on profits/cashflow/liquid assets/previous dividends that the board deems a good share for investors.
Yes, it’s not at all like an interest payment on a bond or bank account. The dividend is set by the company in dollars or pence.
Information providers will divide that figure by the share price to get a percentage for easy comparison purposes, but as you’ve worked out, the share price varies continuously, so the percentage can vary as well, and any percentage dividend you might see quoted is just calculated at an arbitrary moment in time.
Ah, so the share price continually dropping since the ex dividend day means they pay out a smaller dividend? Or am I just unlucky?