if you don't sell the stock you make money by getting the dividend.
It's almost impossible to make money on dividends on publicly-traded companies. The stock prices would already take into account the expected amount of dividends the company will issue to its stockholders, and once the news hits the market, it should reflect instantaneously whether the value of the dividends affected the valuation of the firm (present value of its future cash flows). The company paying dividends is actually decreasing the actual value of the firm as it represents cash outflows that do not directly contribute to increasing future cash flows. Even for privately-held companies, the same basic principle will apply assuming a rational market. With that said, the only people who could possibly make money from dividends are people who hold large numbers of stocks of the specific company that will be using dividends, say in a month or two before a company announces that it will now start paying dividends (which it hasn't before or hasn't for a long time).
Hope this helps~~
LOL! Strangely enough immediately the stock goes Ex-Div it goes C_um Div the next dividend!
Let's say you have a company whose profits are growing steadily and with a stated dividend policy of increasing dividends by 10% each year.
On a simple basis what would the chart look like? You would imagine a steady rise with four downward blips on XD dates. But of course markets don't work like this: investors will over-react on bad and good news and there are many more fasctors that influence the share price than the XD date. In fact often a share will rise on the XD date. Also it may be more enlightening to look at earnings rather than dividends, after all the earnings are 'owned' by the shareholders even though they may not be distributed by way of dividend.
Never forget that the market is trying to discount the future.
You are doing what it seems many new investors on Yahoo Answers do, focusing too much on the mechanics instead of what's important. First, this idea of the stock going down by the dividend amount is utter bullsh*t. It may apply to energy partnerships and stuff that pays fairly large dividends, but show me the chart of AT&T, Clorox and other more typical dividend stocks, because the movements of the market overwhelm the impact of the stock going ex-dividend. Your example never happens in real life. Second, if you are worrying about ex-dividend dates and that crap then you aren't investing, you are trading. Dividend paying stocks are not built for trading, they don't move enough. You hold dividend stocks over time, and statistics show that it is worthwhile to do so. From 2000-2012, the only US stocks that had a positive return were dividend paying stocks. Third, you don't hold a stock just because it pays dividends. You hold it because it is a good company and you expect it to appreciate in value, PLUS it pays you while you are waiting for that to happen.
As I understand it, companies pay stock holders dividends every quarter (yeah!). However, at the beginning of the quarter (around the ex-dividend date) they reduce the value of the stock by the dividend amount (boo!). So if I am understanding dividends correctly, the amount of the stock reduction is the same as the amount of dividend they pay you. So if that is true, how do you make money off of dividends?
For example, lets say a company pays a 5% dividend and you own $1000 of that company. My current understanding is after they adjust the price of the stock to compensate for dividend payments, your stock is worth $950 and they send you a check for $50 3 months later. So the stock value plus the dividends still only add up to $1,000. So how does that benefit you?
Thank you in advance for your input.
Warmest Regards,
Josh
