Personal Finance

Dividend Payments - How long do I have to hold?

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  • Oct 6th, 2008 10:25 pm
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Deal Addict
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Jan 18, 2007
1939 posts
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Dividend Payments - How long do I have to hold?

After doing some reading (from US sites) it seems that I can buy a stock before the dividend payout date (even a couple of days) and still get paid the dividend.

In my situation, after making a healthy 8.8% in my self directed account with short term trades and became cocky and bought a Canadian bank stock at $47.75 a piece. It's a little lower now, so I'm holding until it goes back up to a price where I can profit a little.

I bought the stock last week at that price, and say if I hold it until the end of November (when the dividends are paid), will I receive any dividends?
LIFE IS PURE GENERATED EMOTION
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Deal Addict
Sep 22, 2007
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Yes but you will also pay taxes on those dividends. When you consider that the share price you paid has the value of the dividends calculated into it, you are actually paying taxes on your own money so you are not making any money on this deal.
[OP]
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Jan 18, 2007
1939 posts
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spf1971 wrote:
Oct 3rd, 2008 7:40 pm
Yes but you will also pay taxes on those dividends. When you consider that the share price you paid has the value of the dividends calculated into it, you are actually paying taxes on your own money so you are not making any money on this deal.
I see, so that case would be relevant to a person who buys right before the payout date. Good to know, never looked at it that way. Thanks.
Very nice, I will read this during my reading time.
LIFE IS PURE GENERATED EMOTION
Newbie
Mar 24, 2006
19 posts
Companies publish the dates upon which you must be a shareholder of record (Record Date) to be entitled to the dividend. Since stock trades settle on the third business day after the trade (T+3), at the latest, you must buy the stock 3 business days before before the record date.

To make life easier, companies/brokers/websites publish the Ex-dividend date which is two business days before the record date. If you purchase the stock on or after the Ex-dividend date, you will not receive that dividend. The stock is said to be trading ex-dividend (without the dividend).

Now, don't think for a minute that you're the first person to come up with the idea of buying before the ex-dividend date and selling on the ex-dividend date.

Theoretically, the price of the stock will drop by the exact amount of the dividend on the ex-dividend date. Arbitrageurs (people who trade way faster than you, and essentially for free) will ensure that.

In practice, sometimes the daily volatility in the stock price will eclipse the dividend amount, and you might come out ahead if you trade large enough size. Realistically, the chance of profiting consistently is very small. (Mostly due to the arbitrageurs noted above.)

To answer your question: You can buy as late as 3:59pm the day before the Ex-dividend date, and at 4:01pm enter an order to sell at the (9am) open the next day (on the ex-dividend date) and receive the dividend.
Newbie
May 21, 2008
56 posts
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Surrey
hipfan wrote:
Oct 3rd, 2008 7:52 pm
Now, don't think for a minute that you're the first person to come up with the idea of buying before the ex-dividend date and selling on the ex-dividend date.
.
Party Pooper! Here the poor guy figured he is the one to "beat" the stock market
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