Ex Dividend Price falls

I was wondering what the general opinion is...

Does a share price fall by more than the Dividend due or less than the dividend due when it goes ex dividend?

What are your experiences?

MJK

 

I work off the assumption that the theoretical drop should be dividend + franking credits, would be interested in a more detailed response if anyone knows.

My experiences have been that it's been often less than this due probably to the bull market, though I have only traded since 05 so don't have the experience to compare.

 

have a look at ZFX, yesterday it fell by the dividend amount, and today continues to fall! Lucky the clown exercised my November call I had on the shares! lol

As a general rule, like with bank stocks, the stock falls by the dividend amount (excluding franking credits) and then recovers within the next month.. Some stratergies consist of you buying the stock 45 days before ex-div date (so you get the franking credits) stock usually runs as it comes up to the dividend, collect dividend, then wait another month for the stock to recover..

This is called 'dividend play'

 

The organisation may release information on future earnings at the same time.

So the price goes down by the amount of money that leaves the fund, PLUS the value remaining is based on investors' expectations of the future.

Cheers,

Rob

 

If the price fell by the dividend plus the franking credits, then there would be no reason to hold through a dividend.

eg Share price ex-dividend $50
Dividend $1 FF, $0.43 franking credits
If the share fell ex-dividend by $1.43 to $48.57, then you would pay tax on $1.43 (grossed-up dividend) and get $0.43 offset (FCredit), at 31.5% this is $0.45 tax and $0.43 offset, ie 2c net tax payable.
If the share was now worth $48.57, then you've lost $1.43 in share value, gained $1.00 in dividend cash and paid 2c tax, ie you'd be $0.45 worse off by holding the share.

(of course if you sell to avoid this, you'll have a capital gains event! So it's never that simple!)

Even worse at higher tax rates (eg 46.5% 66c tax payable, still 43c offset, so you'd be -$1.43 + $1.00 + $0.43 -$0.66 = $0.66 worse off).

On the other hand, if the share price always fell by exactly the dividend amount then you would be in front if you bought cum-dividend and sold ex-dividend, since you'd take the dividend, pay tax on it (grossed-up), get the Fcredits back, and have a capital loss to reduce other gains; eg $1.00 FF dividend, $1.00 capital loss, $0.45 tax payable on the dividend (31.5% x $1.43), $0.43 tax offset, 31.5c capital gain write-off (assuming non-discounted capital gains from elsewhere)... about 30c in front.

My experience is that (statistically averaged!) the share price tends to drop by about the dividend amount, regardless of franking. I have some data that I have gathered somewhere, I'll try to track it down. In any case, better to hold FF paying shares.

But good luck trying to guess which way any particular dividend is going to go!

Sorry that was rambling, but I'm doing this in a hurry as my kids are about to go trick-or-treating.

 

Thanks for all the replies.

It wouldn't take an genius to know I was refering to ZFX. I bought at 17.75 and considered selling at $18.50 before the ex div date as I had already gained more than $0.70 value, but thought I would hold to see how things work (a learning process).

Hindsight tells me to bank a profit early if you can. Now I have to wait untill the price gets back up to 17.75 before I can call it a profit. Shouldn't take long. We just need resources to rebound. Its been a bit rough for resources the last few days.

I would rather have been buying ZFX today at 16.60 than holding.

So far I dont think dividend plays will suit my style in future.

MJK

 

It is nice to see the theories, but at the end of the day it is the share market! There is no hard and fast rule, there is no more science involved in the ex-div price drop than there is the price movement any day of the week.

 

Indeed! (But that's what makes it interesting!)

 

Investor: "Hello Mr Fund Manager, what is your market investing strategy ?"

Manager: "Well mate, we don't have a strategy since the market does its own thing."

Investor: "Beauty ! Here's a $100k, take 4% up-front and a further 2% pa fees to let the market do its own thing with my money. I am glad I didn't directly invest and risk falling behind such a dynamic fund."

I think I am in the wrong game, but I'll wait before changing my career to a Fund Manager to see if investor attitudes change when the boom is over.

(**JUST JOKING COOP !!**)

Cheers,

Rob

 

I have seen shares that actually rise on the ex-div day... Best of all worlds when that happens.

ZFX - has been a trouble stock for a little while. It is quite popular for the 'big dividend' but recently there is concern over its current outlook.


Also some stocks won't drop by the franking amount as well as there is a huge O/S shareholder base. O/S investors aren't capable of receiving the franking credit benefit so it doesn't come into their equation.

Have a look at this 'guy'...
Dividend Trading Strategies, Share Trading, dividends, dividend stripping, shares, ex-div

He has been very successful at dividend striping, althought like all investment strategies it won't always work!