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Buying pre/post ex-dividend

Discussion in 'Shares' started by samaka, 19th Dec, 2007.

  1. samaka

    samaka Well-Known Member

    Joined:
    30th Sep, 2007
    Posts:
    308
    Location:
    Sydney
    To make it easier, ignore brokering and the small parcel size.

    Say I want to buy $100 worth of shares in a stock which costs $1.00 and they are going to pay a $0.10 dividend.

    If I buy before the stock goes ex-dividend then I will get a $10.00 dividend - but the stock should drop by $0.10 as you now don't get the dividend.

    If I take that $10 (as a dividend or part of a DRP) and buy more stock I would now have:

    100 units bought @ $1.00 worth $90.00
    11 units bought @ $0.90 worth $9.90

    $99.90 investment (plus $0.10 cash :) )

    If I had waited till the ex-dividend date then I would have:

    111 units bought @ $0.90 worth $99.0

    $99.90 investment (plus $0.10 cash :) )

    So up until this point it makes no difference. However I'm going to get taxed on the dividend right? So at the end of the financial year I'm going to be taxed at what ever rate on the $10.

    Anyway to the point of this post:

    If I'm thinking about buying some shares and the dividend date is coming up soon and I'm confident the price isn't going to move to much (apart from the ex-div reset) then I should way and invest after the dividend date?
     
  2. DaveA

    DaveA Well-Known Member

    Joined:
    19th Feb, 2007
    Posts:
    617
    Location:
    Sydney, NSW
    remember franking credits for the dividend... these are usually not priced into the drop...

    will depend on what tax rate you are on, or if in a trust if there are tax losses...
     
  3. Rod_WA

    Rod_WA Well-Known Member

    Joined:
    18th May, 2007
    Posts:
    324
    Location:
    Inglewood, WA
    I prefer to take the dividend (particularly if it's fully franked).

    This can be a useful debt recycling move - you use borrowed money to buy the shares cum dividend, and use the dividend to pay down non-deductible debt (eg your PPOR loan)... particularly if the investment loan is a LOC with interest rate equal to (or very close, eg 0.05% to the PPOR loan).
     
  4. Saskatoon

    Saskatoon Well-Known Member

    Joined:
    17th Oct, 2005
    Posts:
    67
    Location:
    Aldgate, SA
    Hi samaka,
    Paul Crewther at Posigear has a range of share trading strategies.
    His site is probably worth viewing. His ideas are definitely food for thought.
    Note that this is not a recommendation for his strategies, as I haven't tried them, and you can make your own decision about undertaking his course.
     
  5. bundy1964

    bundy1964 Well-Known Member

    Joined:
    22nd Dec, 2006
    Posts:
    351
    Location:
    Adelaide, SA
    STW and BBI both went up today on exdiv day, so it is a bit of a gamble if you can get them cheaper or not on the day.