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Online Share Trading

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Dividend question - price drop? concept?

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_Marco_
Frequent Contributor
I'm still fairly new to trading but i want to try understand this concept. I'll use basil read as an example for the figures: Closing Price 8may = 13.10 LDR = 8may Div Payment date = 18may I understand that if i had bought this share before the close of trading on the 8th of may I would be entitled to the dividend regardless of whether i sold the share on the following monday? is that correct? Secondly, i have read that the share price will fall by the amount of the dividend. So if the dividend yield is say 4.5%, then the share price will fall by 13.10 - (13.10 x 4.5%) My question is, when will the share price fall by this amount, im assuming on the day the dividend is paid, 18may? If my understandings are correct, would it have been possible to buy this share on the 8th of may for R13.10, sell it on the 14th of may for 13.10 and then still receive your dividend of 4.5% on the 18th of may? Reason being is, if this is possible i'd be able to profit about 2.5% clean on the share after taking into account brokerage costs. This is a minimal amount but surely if u invested alot in it, you could still make some good money. I'd appreciate anyone's replies thankyou :)
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4 REPLIES 4
Vano
Regular Contributor
If LDT is 8May (friday) you can buy just before the JSE closes on Friday 8 may, sell at opening time 09h00 on Monday 11 May, and receive the full dividend. The payout date does not affect the share price. Unless you are very lucky, your selling price will be less than your buying price by at least the amount of the dividend. The reason is quite simple. Assume the shareprice has an "intrinsic" value of X. Then it follows that on friday May 8, the share price = R(X+ dividend). On Monday, people who buy the share, will no longer receive the dividend, so the share price = R(X+(Div-Div) = R(X) ..Right?
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_Marco_
Frequent Contributor
Makes perfect sense, so if i were to buy the basil read share on monday I could expect to easily find a seller who would be willing to sell the share to me @ (Friday closing price - Dividend) ?
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Vano
Regular Contributor
Possibly, but probably not, the share price is affected by market conditions. Perhaps with some good news on Monday, you will get what you want? With bad news, you will not get your price.
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_Marco_
Frequent Contributor
The share price drop of bsr this morning confirmed everthing :) As thought, the price dropped by the dividend portion which was included in the share prior to close of trade on 8th of may. Will be interesting to note how long it takes before the price recovers to that of 8th may.
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