Another example of dividends being reduced from the price is Lockheed Martin's stock today. As you may have noticed in the video, the stock closed yesterday at $341.69. Yet today the stock closed down (according to the quote I saw a minute ago) -$7.42 today..... So $341.69 - $7.42 gives us a closing price today of $334.27. Yet today LMT closed at $331.67. Which is $2.60 lower than what it should have been. Which we know is because of the dividend.
I'm slow. I had to go back and re-watch the video to see what's really going on. On the ex-d day they're quoting the change and %change as from the previous close minus the dividend, but they don't restate the previous close. Got it! Thanks Jimmy for clearing this up.
This wording could give the impression that the company is somehow setting the price of the stock lower or the exchange sets the price lower. This tendency for the price to go down after dividend is issued is just the market reacting to an event, just like any other event. It's also a tendency not a hard and fast rule. If you got a free motorcycle when you bought a car you might bid a bit higher than if you just got the car, but not necessarily.
If I’m interested in a stock, I don’t look at the ex-dividend date. I wait for the dip and then buy it. I’d rather have a great buy in price than worry about the ex-dividend date.
@@Mel684 ty for reply, so lets say i buy dividend stocks after ex date, the dividend payment is "lost" just for that year right? until next ex dividend date?(there is only 1 ex dividend date every year yes?)
Wow! This is the best explanation I have seen on the topic. Especially the part about the dividend being removed from the quoted price. I read a few other articles which all failed to mention it. As always your content is top notch! Happy weekend.
It depends...you buy the stock after the ex-dividend date to avoid the tax (and pay it later). But who know how much the tax will be later? Maybe it will be double, or triple. Or maybe half the price. You can't really tell for sure. What I usually do is buy 1 month before the ex-dividend date and sell right before. There are a lot of people that bring volume in the last week before the ex-date and I usually get a good profit right before it drops the dividend amount. You do this once a month and you can get anywhere between 1% and 3% on a stock. That's a great return per month.
Hi Jimmy! If you’re smaller investor and start a portfolio from scratch, do you think it’s a good strategy to focus on dividend stocks (assuming they can be bought at a discount) sacrificing capital appreciation until you reach a relatively large yearly dividend and then use it to go after “growth” stocks? Note that I’m not suggesting to keep the dividends in cash until the desired yearly amount is reached, they should be reinvested in the currently owned stocks.
For me owning dividend stocks is another source of income and allows to take the dividends and diversify to other stocks. Mostly other dividend-paying companies though, I'm approaching my stop-working-target age.
Created a TH-cam account just so I could subscribe and start supporting your channel. You consistently present high quality information in an easy to understand manner that allows laymen to make (at least relatively) informed investing decisions. Your channel has personally helped me immensely in my journey to pursue Finance as a career and I very much appreciate what you're doing for this community. You making these videos gives me a glimpse of hope and inspiration for succeeding in this field. Sincerely, thank you for doing what you do. I look forward to your future content and will continue to absorb your wisdoms religiously.
This explanation may be a bit misleading because it makes it sound like the stock price will go down by exactly the dividend amount on the ex-dividend date, as if the company can somehow directly order the stock price lower which then funds payment of the dividend. Rather, the company pays the dividend to shareholders from its profits. The stock price typically goes lower on and immediately following the ex-dividend date because new buyers judge it to have less value at that point since they don't get the benefit of the dividend. But the lower price doesn't fund the dividend nor necessarily match the exact amount of the dividend.
Jimmy, I've been actively trying to understand this "ex-dividend date price difference" factor for months and I still couldn't figure it out. And then, there's Jimmy... This is the kind of stuff that makes me keep recommending this channel to everyone I know. Keep up the amazing work!
As always great and valuable content. Thanks, Jimmy! I have 2% of my portfolio in LMT, the US government will keep putting millions in the military which means that LMT will have substantial bussiness over the next decades.
In Finland dividends are taxed more favorably (25.5%) than wins from selling (30%). As a result the stock price might drop more than the dividend payment, but usually the stock price also recovers in a fairly short time. On the other hand, the stock price has probably had a slight boost before the ex-dividend date. So, both buying a few weeks before and selling before the ex-dividend date, or buying after and selling a few weeks later are both viable alternatives to the "tax optimization" strategy. If you only knew how that specific stock behaves this time...
This guy is a genius... No one ever explained it like this. I actually watched this video a couple of times to make sure I heard right. It totally makes sense now
Dude, thank you so much for explaining this. I have always wondered if I could benefit from both of those strategies. I’m glad to know that although you shouldnt short the stock, you can sell calls, which allow you to keep the stock to get the dividend, and you could get premium as long as the stock doesn’t explode by then.
Great point with options. That should work. The only thing I would be careful of is I believe that works for "regular" dividends, but if it's a special dividend, I believe options are also adjusted. But I'm not 100% sure on that rule. But there something about special dividends that throws off options. Just to be aware of 🙂👍
Can someone please correct me or explain it to me: I thought dividends were paid to the shareholder's account directly from the company's account/cashflow. Now Jimmy is saying that they basically remove the dividend amount from the stock price and deposit it into your account. This would simply be a transfer of value from the stock price to cash into your account. I don't see how the shareholder is gaining any value from the dividends? What am I missing?
I have this exact same question myself. If the money is coming from the company, and no shares and traded as a result, why is this affecting the share price?
@@blackmon3 Share price is a reflection of market cap. Market cap is a reflection of the value of the company. The value of the company is determined in large by the company's equity. Paying out large amounts of money as a dividend reduces the assets on the company's balance sheet, reducing the equity.
@MemeMaster420 Market cap, as I understand it, is a reflection of what 'the market' (people willing to buy/sell the stock) think the company is worth. This is how companies like Tesla and Game Stop can have crazy high market caps that are completely divorced from the realities of the underlying business. There are people in the market that are willing to pay that price, so the price goes up to reflect the increased demand. Assuming no one wanted to buy/sell the stock on the ex-date, and the actual money to pay the dividend came from the underlying business, what am I missing about the process of a dividend payment that makes it affect the share price (and by extension, market cap)?
@@MichaelH3948 This makes no sense to me because the price of the share is going down the exact same amount as the dividend. To me it almost looks like market manipulation.
Hey guys, so yes the dividend gets paid by the company. But then, the stock exchanges "adjust" the price to reflect the cash payment to shareholders. Another example is lockheed martin's stock today. As you may have noticed in the video, the stock closed yesterday at $341.69. Yet today the stock closed down (according to the quote I saw a minute ago) -$7.42..... So 341.69 - 7.42 gives us a closing price today of 334.27. Yet today LMT closed at 331.67. Which is $2.60 lower than what it should have been. Which we know is because of the dividend. SOO, is it manipulation? I'm not sure. When I first learned about how dividends truely work, it seemed crazy to me, but since then I just gradually just accepted it as a fact of how it works. Either way, I think more people should understand how dividends work - hence the video. Sorry I don't have more answers 🥺
Hi Jimmy. Well explained easy to understand video. It looks a bit like the market is heading down a the moment. A way of trying to snap up shares like LMT for a lover price is to sell a put option on the ex-dividend day. In this case you might get the shares when the option expires and if you don't then you will at least have the profit from the sale of the option. Thanks again, I love your videos. :)
But who or what drops the stock's price on Ex-dividend date? Is it an automated process by the stock market algorithm, or just a mutual agreement by both buyers and sellers?
There were questions in the comments about how the dividend payment gets reflected in the stock price if trading activity is what sets the stock price. The (over simplified) answer is, the exchange opens the stock for trading on the ex-date minus the dividend. Ex. XYZ closes Jan 1 at $100, the ex-date is Jan 2 and the div. is $1. All things being equal XYZ will open for trading on Jan. 2 at $99.
i didn't know that it was automatically accounted for in the price! but that still doesn't negate the buy before the ex-dividend date strat completely does it? that's just accounting
As for myself, I am not critical in relation to the dividend date because I normally keep these dividend stocks for a very long time. I have many that I owned for decades. I simply keep getting the dividends and buy more shares. Over time these stocks normally move up because of inflation in combination with corporate growth and so-on. Normally dividend stocks are bought to have some income from them. With quality companies that have decent long term performance, and are paying a dividend these are ideal for income. When retired, dependable quality dividend stocks are important for income. If they do a bit of a down run or some type of correction, this is not critical as long as these stocks (companies) keep paying out their dividend.
If you buy 100 shares, then you could technically sell the 337.5C and collect around the amount in dividend you may have missed out on...and if the stock explodes, you still make a profit. If you buy less, you can sell a spread to cover the base to the top....for example, buying 45 shares and selling the 340/347.5C spread will get you $110, 45 shares at 2.60 would have been $117, which is extremely close, and if the stock goes up to 347.5 (max loss) from the current price of 330.80, then you would "lose" 750 for the spread, but profit 751.50 from the increase in the 45 shares of stock, so it becomes almost a wash at any level from 340 and up. Or you can do 15 shares and sell the 345/347.5C spread for $40. If it has options, then you have the ability to make money....you just need to learn math. It's quite funny to me when I hear people sarcastically say something like "I am so glad I learned algebra in school, it totally helps me with my cashier job"...well....I make over 300% a year knowing and using calculus on the stock market. Math is important kids, don't miss out of the good classes in school!
This is clearly better produced than the previous videos! This looks great! My only comment is: when you stand stright there is some shadow on your forehead I imagine is just quick adjustment ion lighting
Hello Jimmy, I have a (possibly stupid) question for you : Let's take your "simplified LMT" example (100$/share with a 2.6$ dividend) which implies a 2.6% dividend yield. As a long term investor, wouldn't it be more interesting to wait for (or after) the ex-dividend date to buy the stock, so that we can have a 2.6$ dividend for a 97.4$ share (implying a 2.67% dividend yield instead of 2.6%) or am I missing something ? I know it doesn't represent a huge difference in this example where we have a 2.6% dividend yield, but for companies with a 4% dividend yield, would that make sense ? Thanks a lot for your answer and for your work on this channel, it's awesome !
Even if you buy right before the ex-date, you still pay 97.4$ per share, since you get the 2.60$ back on the next day. As Jimmy says, the only real difference is taxation. So if you have to tax the dividend, it is better to buy ex-dividend. Otherwise, it really doesn't matter. Besides, any benefit you could gain in such ways would immediately get arbitraged away by professional traders.
Jimmy - thanks for all your videos. Question - In a taxable account, what would you substitute for corporate bonds as a hedge against stock crash? Maybe tax exempt muni etfs or long term treasuries?
Perhaps the best timing for buying a dividend stock is just before a dividend rise is declared? For example, VZ declared a dividend raise on 9/3/20. It could make sense to buy VZ in August 2021 betting on another increase to be declared in September 2021. You may get the most bang for the buck unless this kind of stuff is already baked into the share price.
That don't make sense. You will be tax at the end of the year. If you buy before the exdate, chances are you will still be in the same tax bracket. Plus, If you DRIP the stock then you will miss out reinvesting your dividend payment. I would buy before and on the exdate to lower my cost.
I own very few stocks. LMT is one of them, I 'm very long on them and very confident too. This company will raise its dividend 8-12% per year for many years to come. Americans do not tend to understand the tensions around the world, but as a Greek I will tell you that at least in the eastern Mediteranean Sea the situation changes rapidly and the tensions are arising. This happens in other areas too and the conflict between US & China is also growing. Taking into account the recent acquisition and the space industry that is booming, that's a no brainer. Dividend above 3% with a 40% payout ratio, what are you waiting for?
Hopefully everybody follows your advice - I have made hundreds of trades right before the ex-dividend date and sold right after and made great profits from not only the selling of the stock but also by swooping up the free dividend. Dividends are not, and I repeat, NOT coming out of your stock and just being transferred to your account. There can be some wavering of the price of the stock and sometimes can succinctly line up with the amount the dividend was if the general market feels the value of the stock has fallen that much. Dividends are quite literally coming straight from the company to your broker and then to your account. At least every company I make trades with operate in this fashion, it would be the shadiest deal ever to have a company essentially take money from my own stock and then send it back to me with a "You are welcome" note on it. I would avoid those companies at all costs.
Very detailed information as always - thanks so much! I usually do not own dividend stocks, but plan to in the near future. I could never remember if I had to own on ex-div date or before - thanks! 👍😊
buy a few days before the ex-div date, sell your shares before the market closes on the day before the ex-div date at a time when there are many buyers looking to jump in for the dividend.
question. what if i sell all my shares on the declaration date and buy them back on the EX-date? margin account. not receive the dividend. seems I would not have to pay tax, because I did not receive the dividend but when I bought the shares back I would be buying them back at a lesser price? this is as if i bought more shares with the dividend but no tax.
Quick question., I am noticing a lot of dividend stocks with the ex div date of December 2022. how do i capitalize on these stocks. can i still buy the stock and collect the dividend?
Depends what you want. I prefer getting the dividend as it is more of a guarantee that you will be paid as opposed to hoping that the price will go up, then you must sell it to make the "gain" which costs money.
The value in this video is ridiculous! I've wanted to know this information for years. I figured buying b4 the ex-dividend date strategy wouldn't work, but I never knew why. I did know about the shorts having to pay the dividend though, which I think is funny - not sure why but I do literally laugh when I think about it. XD
There are tax implications of buying prior to the ex-div as well (especially if the payment date is < 60 days or you sell shortly after). You must hold a share for 60 days for it's payment to be considered a qualified dividend. Because of the TCJA, income from a qualified dividend is untaxed for an AGI < $40k for single and $80k for married, which is basically a 20-30% boost in the effective return of the dividend for most people, and if you are living on ONLY dividends, you can be federal income tax free.
Wouldn't the best strategy for long term investors be to buy the stock before the ex-dividend day and then invest those dividends straight into the same stock again as soon as you get the dividend? More stock for your money?
Does that mean that companies are paying dividends for free? If that's the case, what is the payout ratio for? Also, i feel like it should be announced a yield percentage on what the share price will be on the ex dividend date, instead of a dividend amount.
11:43 I'm a new investor, and what I'm learning is that it's just personal preference, right? My thought process is that I'm planning to hold long-term, therefore it's ok to buy before the ex-div date, because despite being taxed, it will still be a profit. Is this a bad idea?
So as far as reinvesting dividends to purchase other tickers, rather than DRIP back into same ticker, I wonder if purchasing monthly dividend payers, i.e. OXLC, PSEC, HRZN, GAIN MDIV ect., would accomplish the goal in a more expedient time frame?
I tried this with Canadian banks last quarter, rotating through them to capture the dividends, buying a week before ex dividend and selling after the price recovered, and deciding if it worked or not is... difficult. Canadian bank stocks bought on ex dividend had better returns in 3 months than if bought before ex dividend, or seemed to in the examples I looked at... so buying on ex dividend is the sale price for the next quarters dividend.
Very interesting, I didn't know the price goes down literally the same amount as the dividend paid! Does this happens always? What about stocks with very high dividend yield? Why is the price of the shares affected if the company paid with its money?
Yes this happens whenever a dividend is paid. Even with high dividend stocks or ETFs. And I believe the theory is... If I am worth $1000 and I give you $100, by definition I am now worth $900. so in theory, the transfer of cash from the company to the investor will reduce the stock price by the exact dividend amount. I think the tricky part, as I tried to point out in the video, is that the reduction in the price doesn't appear in the daily move of the stock price. So unless we're paying close attention, many Investors will never see what really happened to the stock price.
@@LearntoInvest Thank you for the reply and the always interesting and useful content! I still don't get why it's reflected in the stock price if price isn't the same as value, I mean, if a company pays with its money, I just don't see why the stock price should be affected, as it's a product of traders and investors while buying and selling, not actual current value...
@@SergiMedina It's because the company itself is now worth less by the amount of the dividend. Think of it this way: I offer to sell you my company, the only asset is a $100 bank account. You agree to pay me the fair economic/market value. Then I pay a dividend of one dollar to somebody, the fair value you would give me is now $99. Part 2: But wait there's more! The company you bought for $99 is an exchange traded company. You awake to find Maria Bartiromo is breathlessly reporting on CNBC that $99 Bank Account Inc. has been sold to a mystery buyer. Could it be Jeff Bezos? The traders bid the company up to over $800 by noon. Then it becomes known that the company was bought; not by Bezos but by Sergi Medina. The founder of Google?! BUY! No, that's Sergey Brin. The guy who asked a good question on TH-cam is the buyer. SEELLL!!! By closing the panicked traders have bid the company down to $83. All the while It's still worth $99. But this is Wall St. The first part is the reality the second part is the insanity of Wall St. The second part does not negate the first part. What people who try Dividend Capture don't realize, is that they are not capitalizing on the reality, they are gambling on the insanity.
@@awalton9024 Thank you for the (long) explanation, A Walton. Alas, I still don't understand why the dividend payment is reflected in the stock price if the stock price frequently has nothing to do with the “real” or “actual” value of the company... I mean the market cap doesn't have to necessarily be what the company is really worth...
@@SergiMedina Sorry I didn't help, hope I was at least entertaining. Mainly it's important just to know that if you are a long term investor then don't worry about it, collect your dividends. The economics of the firm will be lost in the trading noise. But for people who believe they are getting a "free lunch" by buying before the Ex-div. date and selling after the record date, they aren't. They are gambling on what the market will do during that three day period.
Thank you for the info. But some issues were not answered or explained. So should you buy a stock maybe a week or two before the ex dividend if the stock would tend to rise just before the ex dividend. Wouldn’t the stock tend to normalize after the ex dividend dates so dividend captures would work if the time frame was a little longer to sell? Could you sell covered calls to mitigate the ex dividend drop especially calls slightly in the money? If I capture the dividend I am looking for income and I will receive three dividends in 6 months rather than two. Personally I have an aversion to holding stock for long periods as even though in the long run it may be okay but I try to avoid the fear and heartburn of an individual stock or market slump. Thanks.
this is exactly what I wanted to apply on ABBVIE at the last ex dividend date. It was a bad choise. The price grew in the last week more than the dividend price, after x date, for a short period it decreasted, but, it boomed to more than 115 .... In this (exception) it would have been bether to buy before ex date. Would have got dividends + price groght .. :) Exception.
Very clear, thanks. I learnt most of that the hard way :D . is there a thing to play with leverage ? If i buy the stock after the dividend date, the stock have more latitude to go down before we hit the stop loss, no ?
like in hsa and Roth IRA if I have low income.And we all know we don't need to pay tax. My question : Can I get the full dividend if I don't keep the stock 61 days?
I have a question let's say if some one has a life saving of $40,000.00 and decided to invest in 20 or 30 different stocks dividends and each dividends pays between 3%too 5% and cash dividends were each let's say $0.60€ too $0.80€ per share and that person has decided to buy 200 shares from each 20 or 30 different dividends stocks so that's$120.00 too $160.00 all together that's$2,400.00 too $3,200.00 monthly too $3,600.00 too $4,800.00 monthly how much by the end of the year would that person get to earn and keep after taxes that is my question
It sometimes takes a few days or even weeks but the price usually returns to its pre-Ex-dividend date price. I know people who do the dividend capture and simply wait until the price returns and then they sell and do it again. They make several trades a month like this and are making money. Buying the stock after the price dip and riding it back up seems less risky to me.
![[LIVE] : ONE ลุมพินี 91 | คู่เอก "คมอาวุธ vs อเล็กเซย์"](http://i.ytimg.com/vi/V0RkEfYFsgM/mqdefault.jpg)
Another example of dividends being reduced from the price is Lockheed Martin's stock today. As you may have noticed in the video, the stock closed yesterday at $341.69. Yet today the stock closed down (according to the quote I saw a minute ago) -$7.42 today..... So $341.69 - $7.42 gives us a closing price today of $334.27. Yet today LMT closed at $331.67. Which is $2.60 lower than what it should have been. Which we know is because of the dividend.
Very sad , but I bought more at 332 :D
For some reason I have most of my success buying a dividend stock a week or so after the ex dividend date at a good discount
I'm slow. I had to go back and re-watch the video to see what's really going on. On the ex-d day they're quoting the change and %change as from the previous close minus the dividend, but they don't restate the previous close. Got it! Thanks Jimmy for clearing this up.
This wording could give the impression that the company is somehow setting the price of the stock lower or the exchange sets the price lower. This tendency for the price to go down after dividend is issued is just the market reacting to an event, just like any other event. It's also a tendency not a hard and fast rule. If you got a free motorcycle when you bought a car you might bid a bit higher than if you just got the car, but not necessarily.
You can trust this guy because he wears US Polo Assn instead of Polo Ralph Lauren. So you know he’s money conscious
He better upgrade to that Ralph Lauren . That USPA not where it’s at
I knew a Chad Tague back in Tennessee 🤔
@@ericferguson1062 lol sup bro? You know there’s only one of me.
If I’m interested in a stock, I don’t look at the ex-dividend date. I wait for the dip and then buy it. I’d rather have a great buy in price than worry about the ex-dividend date.
Agreed!!!
Same here!
if i buy stocks after ex dividend date will i still be able to receive money from dividends from this stocks in future? ty in advance
@@David-xn8bm yes indeed
@@Mel684 ty for reply, so lets say i buy dividend stocks after ex date, the dividend payment is "lost" just for that year right? until next ex dividend date?(there is only 1 ex dividend date every year yes?)
I have been buying dividend stocks recently. The ex-dividend date has never affected my decision to buy but this information is very useful to know.
I bought yesterday and today (ex div date) because I am in for long term and I simply do not care about one pay date 😊
Jimmy and dividend videos go together like PB and J. Great work as always Jimmy.
Wow! This is the best explanation I have seen on the topic. Especially the part about the dividend being removed from the quoted price. I read a few other articles which all failed to mention it. As always your content is top notch! Happy weekend.
This was probably a hassle to think about how to explain, and you made it clear and easy to understand, great job :)
Lockheed Martin looks at Jimmy.
Jimmy: *in red head band* “I like the stock”
It depends...you buy the stock after the ex-dividend date to avoid the tax (and pay it later). But who know how much the tax will be later? Maybe it will be double, or triple. Or maybe half the price. You can't really tell for sure. What I usually do is buy 1 month before the ex-dividend date and sell right before. There are a lot of people that bring volume in the last week before the ex-date and I usually get a good profit right before it drops the dividend amount. You do this once a month and you can get anywhere between 1% and 3% on a stock. That's a great return per month.
Hi Jimmy!
If you’re smaller investor and start a portfolio from scratch, do you think it’s a good strategy to focus on dividend stocks (assuming they can be bought at a discount) sacrificing capital appreciation until you reach a relatively large yearly dividend and then use it to go after “growth” stocks?
Note that I’m not suggesting to keep the dividends in cash until the desired yearly amount is reached, they should be reinvested in the currently owned stocks.
For me owning dividend stocks is another source of income and allows to take the dividends and diversify to other stocks. Mostly other dividend-paying companies though, I'm approaching my stop-working-target age.
@@pasiojala3227 same strategy here. i think its fun to research and branch out into other companies.
Wow! Please keep bringing info nobody else is talking about. This is real investing class 101!! Bravo 👏
Created a TH-cam account just so I could subscribe and start supporting your channel. You consistently present high quality information in an easy to understand manner that allows laymen to make (at least relatively) informed investing decisions. Your channel has personally helped me immensely in my journey to pursue Finance as a career and I very much appreciate what you're doing for this community. You making these videos gives me a glimpse of hope and inspiration for succeeding in this field. Sincerely, thank you for doing what you do. I look forward to your future content and will continue to absorb your wisdoms religiously.
I really appreciate the kind words and all the support!!! 👍🙂
This explanation may be a bit misleading because it makes it sound like the stock price will go down by exactly the dividend amount on the ex-dividend date, as if the company can somehow directly order the stock price lower which then funds payment of the dividend. Rather, the company pays the dividend to shareholders from its profits. The stock price typically goes lower on and immediately following the ex-dividend date because new buyers judge it to have less value at that point since they don't get the benefit of the dividend. But the lower price doesn't fund the dividend nor necessarily match the exact amount of the dividend.
By far, the best investing channel on TH-cam!
Together with Sven Carlin!
Jimmy, I've been actively trying to understand this "ex-dividend date price difference" factor for months and I still couldn't figure it out. And then, there's Jimmy... This is the kind of stuff that makes me keep recommending this channel to everyone I know. Keep up the amazing work!
@@learntoinvest4843 I reported your channel. Stop spamming
Hi Jimmy! Great video! I've never come across these concepts anywhere else, love learning new things. Keep up the good work!
As always great and valuable content. Thanks, Jimmy! I have 2% of my portfolio in LMT, the US government will keep putting millions in the military which means that LMT will have substantial bussiness over the next decades.
I have been heavy on stock trading before
I'm not sure how much longer I could have traded without
I'd been doing a lot of intraday trading with a
A lot has changed, and that
Eric Birger was introduced to me during a seminar in
Super easy to understand the way you lay it out. Thank you.
In Finland dividends are taxed more favorably (25.5%) than wins from selling (30%). As a result the stock price might drop more than the dividend payment, but usually the stock price also recovers in a fairly short time. On the other hand, the stock price has probably had a slight boost before the ex-dividend date. So, both buying a few weeks before and selling before the ex-dividend date, or buying after and selling a few weeks later are both viable alternatives to the "tax optimization" strategy. If you only knew how that specific stock behaves this time...
This guy is a genius... No one ever explained it like this. I actually watched this video a couple of times to make sure I heard right. It totally makes sense now
nicely put Jimmy! I made some research about that topic few months ago and your video is by far better! Great job!
I've been using the div capture Strategy for almost a decade. There are other factors than the ones in the video. This is a good introductory video
Dude, thank you so much for explaining this. I have always wondered if I could benefit from both of those strategies. I’m glad to know that although you shouldnt short the stock, you can sell calls, which allow you to keep the stock to get the dividend, and you could get premium as long as the stock doesn’t explode by then.
Great point with options. That should work. The only thing I would be careful of is I believe that works for "regular" dividends, but if it's a special dividend, I believe options are also adjusted. But I'm not 100% sure on that rule. But there something about special dividends that throws off options. Just to be aware of 🙂👍
Can someone please correct me or explain it to me:
I thought dividends were paid to the shareholder's account directly from the company's account/cashflow.
Now Jimmy is saying that they basically remove the dividend amount from the stock price and deposit it into your account. This would simply be a transfer of value from the stock price to cash into your account.
I don't see how the shareholder is gaining any value from the dividends? What am I missing?
I have this exact same question myself. If the money is coming from the company, and no shares and traded as a result, why is this affecting the share price?
@@blackmon3 Share price is a reflection of market cap. Market cap is a reflection of the value of the company. The value of the company is determined in large by the company's equity. Paying out large amounts of money as a dividend reduces the assets on the company's balance sheet, reducing the equity.
@MemeMaster420 Market cap, as I understand it, is a reflection of what 'the market' (people willing to buy/sell the stock) think the company is worth. This is how companies like Tesla and Game Stop can have crazy high market caps that are completely divorced from the realities of the underlying business. There are people in the market that are willing to pay that price, so the price goes up to reflect the increased demand. Assuming no one wanted to buy/sell the stock on the ex-date, and the actual money to pay the dividend came from the underlying business, what am I missing about the process of a dividend payment that makes it affect the share price (and by extension, market cap)?
@@MichaelH3948 This makes no sense to me because the price of the share is going down the exact same amount as the dividend. To me it almost looks like market manipulation.
Hey guys, so yes the dividend gets paid by the company. But then, the stock exchanges "adjust" the price to reflect the cash payment to shareholders. Another example is lockheed martin's stock today. As you may have noticed in the video, the stock closed yesterday at $341.69. Yet today the stock closed down (according to the quote I saw a minute ago) -$7.42..... So 341.69 - 7.42 gives us a closing price today of 334.27. Yet today LMT closed at 331.67. Which is $2.60 lower than what it should have been. Which we know is because of the dividend.
SOO, is it manipulation? I'm not sure. When I first learned about how dividends truely work, it seemed crazy to me, but since then I just gradually just accepted it as a fact of how it works. Either way, I think more people should understand how dividends work - hence the video. Sorry I don't have more answers 🥺
Ah I think the market fluctuation hiding the dividend payment was confusing me the last time you mentioned this. Thanks!
what do you think about T as a dividend investment ?
Great investment
Aren't they Losing some business?
6.7% yeild as of 4-6-21. Thats very solid. Dont put all your eggs in one basket though. I actually own some T myself.
Thanks for this video I've always wanted to ask this question....
If dividends need to follow the 121 day rule to become qualified, is it possible to do this on monthly dividends since you only have a 60 day window?
Another great video! The best man for explaining things to investors there is
Like the new icon and the new lighting, thanks for the videos.
Thanks for the answer 👍 bought the stock today.
Appreciate your videos. Very informative and objective. Subscribed
Hi Jimmy. Well explained easy to understand video. It looks a bit like the market is heading down a the moment. A way of trying to snap up shares like LMT for a lover price is to sell a put option on the ex-dividend day. In this case you might get the shares when the option expires and if you don't then you will at least have the profit from the sale of the option.
Thanks again, I love your videos. :)
Thank you Jimmy! I really look forward to a video on dividends every couple weeks or months, I ALWAYS learn something new from them.
Hi Jimmy, is it possible for you to post the excel sheet ( or the pdf) when you do a DCF on a stock ? thanks
But who or what drops the stock's price on Ex-dividend date? Is it an automated process by the stock market algorithm, or just a mutual agreement by both buyers and sellers?
From my understanding it's an automation put in place by the stock exchanges
Automation? Is that right? Can a party outside of the buyer or the seller dictate a price to the market?
There were questions in the comments about how the dividend payment gets reflected in the stock price if trading activity is what sets the stock price. The (over simplified) answer is, the exchange opens the stock for trading on the ex-date minus the dividend. Ex. XYZ closes Jan 1 at $100, the ex-date is Jan 2 and the div. is $1. All things being equal XYZ will open for trading on Jan. 2 at $99.
I love your content. Good explanations and right to the point.
i didn't know that it was automatically accounted for in the price! but that still doesn't negate the buy before the ex-dividend date strat completely does it? that's just accounting
Hi Jimmy, just wanna say thanks for the great videos! Been trying to get started investing and your channel really helped me A TON learning.
As for myself, I am not critical in relation to the dividend date because I normally keep these dividend stocks for a very long time. I have many that I owned for decades. I simply keep getting the dividends and buy more shares. Over time these stocks normally move up because of inflation in combination with corporate growth and so-on.
Normally dividend stocks are bought to have some income from them. With quality companies that have decent long term performance, and are paying a dividend these are ideal for income. When retired, dependable quality dividend stocks are important for income. If they do a bit of a down run or some type of correction, this is not critical as long as these stocks (companies) keep paying out their dividend.
Good point. . in the long run, dividends could be seen convenient way of selling small amounts of stock, done automatically.
Wow something I didn’t know, nice work Jimmy!
If you buy 100 shares, then you could technically sell the 337.5C and collect around the amount in dividend you may have missed out on...and if the stock explodes, you still make a profit. If you buy less, you can sell a spread to cover the base to the top....for example, buying 45 shares and selling the 340/347.5C spread will get you $110, 45 shares at 2.60 would have been $117, which is extremely close, and if the stock goes up to 347.5 (max loss) from the current price of 330.80, then you would "lose" 750 for the spread, but profit 751.50 from the increase in the 45 shares of stock, so it becomes almost a wash at any level from 340 and up. Or you can do 15 shares and sell the 345/347.5C spread for $40.
If it has options, then you have the ability to make money....you just need to learn math. It's quite funny to me when I hear people sarcastically say something like "I am so glad I learned algebra in school, it totally helps me with my cashier job"...well....I make over 300% a year knowing and using calculus on the stock market.
Math is important kids, don't miss out of the good classes in school!
Best video to explain the dividend!
This is clearly better produced than the previous videos! This looks great! My only comment is: when you stand stright there is some shadow on your forehead I imagine is just quick adjustment ion lighting
Good call, I'll see if I can fix that
Thank you for your time and effort .
Hello Jimmy, I have a (possibly stupid) question for you :
Let's take your "simplified LMT" example (100$/share with a 2.6$ dividend) which implies a 2.6% dividend yield.
As a long term investor, wouldn't it be more interesting to wait for (or after) the ex-dividend date to buy the stock, so that we can have a 2.6$ dividend for a 97.4$ share (implying a 2.67% dividend yield instead of 2.6%) or am I missing something ?
I know it doesn't represent a huge difference in this example where we have a 2.6% dividend yield, but for companies with a 4% dividend yield, would that make sense ?
Thanks a lot for your answer and for your work on this channel, it's awesome !
Even if you buy right before the ex-date, you still pay 97.4$ per share, since you get the 2.60$ back on the next day.
As Jimmy says, the only real difference is taxation. So if you have to tax the dividend, it is better to buy ex-dividend. Otherwise, it really doesn't matter.
Besides, any benefit you could gain in such ways would immediately get arbitraged away by professional traders.
Perfectly clear explanation. Thank you very much!
had no idea they were doing it this month, i bought in on the 24th, didnt do a full share only fractional (put $100 on it)
Jimmy - thanks for all your videos. Question - In a taxable account, what would you substitute for corporate bonds as a hedge against stock crash? Maybe tax exempt muni etfs or long term treasuries?
Good info like always. Can you consider doing videos on selling options? It's making me a lot more than dividends have so far.
Perhaps the best timing for buying a dividend stock is just before a dividend rise is declared? For example, VZ declared a dividend raise on 9/3/20. It could make sense to buy VZ in August 2021 betting on another increase to be declared in September 2021. You may get the most bang for the buck unless this kind of stuff is already baked into the share price.
I was aware of the price difference but now you provided the evidence behind it. Thanks Jimmy!
Very educational, thank you
Thoughts on AIF
I bought some LMT based on your previous vid, I did on Friday, as I want to postpone my taxes as you mentioned in the end :)
That don't make sense. You will be tax at the end of the year. If you buy before the exdate, chances are you will still be in the same tax bracket. Plus, If you DRIP the stock then you will miss out reinvesting your dividend payment. I would buy before and on the exdate to lower my cost.
@@HitsFromThePast I guess you are right, but I am from Europe (So tax system is a bit different in my case :) )
I own very few stocks. LMT is one of them, I 'm very long on them and very confident too. This company will raise its dividend 8-12% per year for many years to come. Americans do not tend to understand the tensions around the world, but as a Greek I will tell you that at least in the eastern Mediteranean Sea the situation changes rapidly and the tensions are arising. This happens in other areas too and the conflict between US & China is also growing. Taking into account the recent acquisition and the space industry that is booming, that's a no brainer. Dividend above 3% with a 40% payout ratio, what are you waiting for?
Well Said
Jimmy you are the man! Thanks for sharing the knowledge
Hi Jimmy, thanks for the hard work . I was curious about this specific topic.
Thanks for very useful information! Keep up the good job!
Jimmy, a video idea for you. How to value a company with no FCF!
I’d try a PE valuation
that's a lot for explaining the math behind the charts!
Well surely buying it on the ex divi date is the best then because it'll drop in price
Thanks Jimmy for answering my question!
Hopefully everybody follows your advice - I have made hundreds of trades right before the ex-dividend date and sold right after and made great profits from not only the selling of the stock but also by swooping up the free dividend. Dividends are not, and I repeat, NOT coming out of your stock and just being transferred to your account. There can be some wavering of the price of the stock and sometimes can succinctly line up with the amount the dividend was if the general market feels the value of the stock has fallen that much. Dividends are quite literally coming straight from the company to your broker and then to your account. At least every company I make trades with operate in this fashion, it would be the shadiest deal ever to have a company essentially take money from my own stock and then send it back to me with a "You are welcome" note on it. I would avoid those companies at all costs.
Very detailed information as always - thanks so much! I usually do not own dividend stocks, but plan to in the near future. I could never remember if I had to own on ex-div date or before - thanks! 👍😊
Hey Jimmy, could you do a CVS Health stock analysis please? Seems undervalued to me. Let me know what you think!
Thanks in advance.
buy a few days before the ex-div date, sell your shares before the market closes on the day before the ex-div date at a time when there are many buyers looking to jump in for the dividend.
Great video! The problem on the short strategy, still occurs when trading leveraged CFDs?
question. what if i sell all my shares on the declaration date and buy them back on the EX-date? margin account. not receive the dividend. seems I would not have to pay tax, because I did not receive the dividend but when I bought the shares back I would be buying them back at a lesser price? this is as if i bought more shares with the dividend but no tax.
Quick question., I am noticing a lot of dividend stocks with the ex div date of December 2022. how do i capitalize on these stocks. can i still buy the stock and collect the dividend?
SCHD?
Depends what you want. I prefer getting the dividend as it is more of a guarantee that you will be paid as opposed to hoping that the price will go up, then you must sell it to make the "gain" which costs money.
The value in this video is ridiculous! I've wanted to know this information for years. I figured buying b4 the ex-dividend date strategy wouldn't work, but I never knew why. I did know about the shorts having to pay the dividend though, which I think is funny - not sure why but I do literally laugh when I think about it. XD
That was so healthy information! Thanks!
There are tax implications of buying prior to the ex-div as well (especially if the payment date is < 60 days or you sell shortly after). You must hold a share for 60 days for it's payment to be considered a qualified dividend. Because of the TCJA, income from a qualified dividend is untaxed for an AGI < $40k for single and $80k for married, which is basically a 20-30% boost in the effective return of the dividend for most people, and if you are living on ONLY dividends, you can be federal income tax free.
Thank you I love your videos
Great advise thanks
Wouldn't the best strategy for long term investors be to buy the stock before the ex-dividend day and then invest those dividends straight into the same stock again as soon as you get the dividend? More stock for your money?
You are awesome, thank you Jimmy
Does that mean that companies are paying dividends for free? If that's the case, what is the payout ratio for?
Also, i feel like it should be announced a yield percentage on what the share price will be on the ex dividend date, instead of a dividend amount.
11:43 I'm a new investor, and what I'm learning is that it's just personal preference, right? My thought process is that I'm planning to hold long-term, therefore it's ok to buy before the ex-div date, because despite being taxed, it will still be a profit. Is this a bad idea?
So as far as reinvesting dividends to purchase other tickers, rather than DRIP back into same ticker, I wonder if purchasing monthly dividend payers, i.e. OXLC, PSEC, HRZN, GAIN MDIV ect., would accomplish the goal in a more expedient time frame?
Thanks Jimmy. Any chance you are also doing an analysis on the other attractively valued defense companies like NOC and LHX?
Thanks, Jimbo.
Jimmy, can you do a video about nav for reits?
What if you sell the stock before the ex dividend date , are you still eligible to receive the dividend?
Thanks for the video!
I tried this with Canadian banks last quarter, rotating through them to capture the dividends, buying a week before ex dividend and selling after the price recovered, and deciding if it worked or not is... difficult. Canadian bank stocks bought on ex dividend had better returns in 3 months than if bought before ex dividend, or seemed to in the examples I looked at... so buying on ex dividend is the sale price for the next quarters dividend.
Very interesting, I didn't know the price goes down literally the same amount as the dividend paid! Does this happens always? What about stocks with very high dividend yield? Why is the price of the shares affected if the company paid with its money?
Yes this happens whenever a dividend is paid. Even with high dividend stocks or ETFs. And I believe the theory is... If I am worth $1000 and I give you $100, by definition I am now worth $900. so in theory, the transfer of cash from the company to the investor will reduce the stock price by the exact dividend amount. I think the tricky part, as I tried to point out in the video, is that the reduction in the price doesn't appear in the daily move of the stock price. So unless we're paying close attention, many Investors will never see what really happened to the stock price.
@@LearntoInvest Thank you for the reply and the always interesting and useful content!
I still don't get why it's reflected in the stock price if price isn't the same as value, I mean, if a company pays with its money, I just don't see why the stock price should be affected, as it's a product of traders and investors while buying and selling, not actual current value...
@@SergiMedina It's because the company itself is now worth less by the amount of the dividend. Think of it this way: I offer to sell you my company, the only asset is a $100 bank account. You agree to pay me the fair economic/market value. Then I pay a dividend of one dollar to somebody, the fair value you would give me is now $99.
Part 2: But wait there's more! The company you bought for $99 is an exchange traded company. You awake to find Maria Bartiromo is breathlessly reporting on CNBC that $99 Bank Account Inc. has been sold to a mystery buyer. Could it be Jeff Bezos? The traders bid the company up to over $800 by noon. Then it becomes known that the company was bought; not by Bezos but by Sergi Medina. The founder of Google?! BUY! No, that's Sergey Brin. The guy who asked a good question on TH-cam is the buyer. SEELLL!!! By closing the panicked traders have bid the company down to $83. All the while It's still worth $99. But this is Wall St.
The first part is the reality the second part is the insanity of Wall St. The second part does not negate the first part. What people who try Dividend Capture don't realize, is that they are not capitalizing on the reality, they are gambling on the insanity.
@@awalton9024 Thank you for the (long) explanation, A Walton. Alas, I still don't understand why the dividend payment is reflected in the stock price if the stock price frequently has nothing to do with the “real” or “actual” value of the company... I mean the market cap doesn't have to necessarily be what the company is really worth...
@@SergiMedina Sorry I didn't help, hope I was at least entertaining. Mainly it's important just to know that if you are a long term investor then don't worry about it, collect your dividends. The economics of the firm will be lost in the trading noise. But for people who believe they are getting a "free lunch" by buying before the Ex-div. date and selling after the record date, they aren't. They are gambling on what the market will do during that three day period.
Great video, would've been nice watching this video years ago before I learned from trial & error and reading
Thank you for the info. But some issues were not answered or explained. So should you buy a stock maybe a week or two before the ex dividend if the stock would tend to rise just before the ex dividend. Wouldn’t the stock tend to normalize after the ex dividend dates so dividend captures would work if the time frame was a little longer to sell? Could you sell covered calls to mitigate the ex dividend drop especially calls slightly in the money? If I capture the dividend I am looking for income and I will receive three dividends in 6 months rather than two. Personally I have an aversion to holding stock for long periods as even though in the long run it may be okay but I try to avoid the fear and heartburn of an individual stock or market slump. Thanks.
Love the new logo :)
this is exactly what I wanted to apply on ABBVIE at the last ex dividend date. It was a bad choise.
The price grew in the last week more than the dividend price, after x date, for a short period it decreasted, but, it boomed to more than 115 ....
In this (exception) it would have been bether to buy before ex date. Would have got dividends + price groght .. :)
Exception.
Very clear, thanks. I learnt most of that the hard way :D . is there a thing to play with leverage ? If i buy the stock after the dividend date, the stock have more latitude to go down before we hit the stop loss, no ?
So a dividend is also a way for a company to control its share price?
like in hsa and Roth IRA if I have low income.And we all know we don't need to pay tax. My question : Can I get the full dividend if I don't keep the stock 61 days?
I have a question let's say if some one has a life saving of $40,000.00 and decided to invest in 20 or 30 different stocks dividends and each dividends pays between 3%too 5% and cash dividends were each let's say $0.60€ too $0.80€ per share and that person has decided to buy 200 shares from each 20 or 30 different dividends stocks so that's$120.00 too $160.00 all together that's$2,400.00 too $3,200.00 monthly too $3,600.00 too $4,800.00 monthly how much by the end of the year would that person get to earn and keep after taxes that is my question
It sometimes takes a few days or even weeks but the price usually returns to its pre-Ex-dividend date price. I know people who do the dividend capture and simply wait until the price returns and then they sell and do it again. They make several trades a month like this and are making money. Buying the stock after the price dip and riding it back up seems less risky to me.