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Are dividends real income?

Discussion in 'Shares' started by sharejunky, 12th Oct, 2013.

  1. sharejunky

    sharejunky Well-Known Member

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    Since a share's price is adjusted downward by the amount of the dividend, how can a dividend be called income? Isn't it the same as having a bank account where they pay you 3% but take 3% out of your account beforehand? Or am I missing something here? Just wondering...
     
  2. Tropo

    Tropo Well-Known Member

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  3. samaka

    samaka Well-Known Member

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    This is true, if you assume that the market is price efficient. The share should drop by the value of the dividend once it reaches the ex-div date. However, the market is not perfectly efficient (although very close). So there is the potential that it won't drop as much as the dividend. Whether it does or not is the risk you take.
     
  4. twisted strategies

    twisted strategies Well-Known Member

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    that would depend it the SP recovers to a median price close to the shares net tangible assets (NTA) , some (rarely) stop rising after going ex-div.

    others will fall below (and stay below) NTA until a new div. is declared (some LICS are very prone to this) , not a bad thing if you are an accumulation style investor .