Forum: money.stackexchange.com
Tags: <stocks><dividends><stock-exchanges><stock-markets>
Title: Can dividends be exploited?
Question: Apple announced a dividend of $2.65/share on August 16th. I was thinking... could somebody buy, say 1,000 shares of Apple, receive the dividend, and then sell the shares right back?  http://www.latimes.com/business/technology/la-fi-tn-apple-dividends-20120724,0,6646852.story

Answers:
sents: text: The moment the dividend is announced, especially from a company that doesn't normally pay dividends, the dividend is factored into everybody's analysis.
text: In the absence of any other news the price of apple would be expected to drop once the dividend in locked in.
text: Why would I buy shares from you at full price one day after the dividend is paid, if I will have to wait for the next dividend?
text: Also keep in mind the dividend was announced on July 24th, and is given to shareholders of record on August 13th.
text: You are way behind the curve.
answer_details: author: money.stackexchange.com/users/5414/mhoran_psprep
score: 7
sents: text: No , the dividends can't be exploited like that.
text: Dividends settlement are tied to an ex-dividend date.
text: The ex-dividend, is the day that allows you to get a dividend if you own the stock.
text: Since a buyer of the stock after this date won't get the dividend, the price usually drop by the amount of the dividend.
text: In your case the price of a share would lose $2.65 and you will be credited by $2.65 in cash such that your portfolio won't change in value due to the dividend.
text: Also, you can't exploit the drop in price by short-selling, as you would be owing the dividend to the person lending you the stock for the short sale.
text: Finally, the price of the stock at the ex-dividend will also be affected by the supply and demand, such that you can't be precisely sure of the drop in price of the security.
answer_details: author: money.stackexchange.com/users/5979/Mesop
score: 5
sents: text: In an ideal world Say on 24th July the share price of Apple was $600.
text: Everyone knows that they will get the $ 2.65 on 16th August.
text: There is not other news that is affecting the price.
text: You want to go in and buy the shares on 16th Morning at $600 and then sell it on 17th August at $600.
text: Now in this process you have earned sure shot $2.65/- Or in an ideal world when the announcement is made on 24th July
text: , why would I sell it at $600, when I know if I wait for few more days I will get $2.65/-
text: so i will be more inclined to sell it at $602.65 /-
text: ...
text: so on 16th Aug after the dividend is paid out, the share price will be back to $600/-
text: In a real world, dividend or no dividend the share price would be moving up or down ...
text: Notice that the dividend amount is less than 1% of the stock price ...
text: stock prices change more than this percentage ...
text: so if you are trying to do what is described in paragraph one, then you may be disappointed as the share price may go down as well by more than $2.65 you have made
answer_details: author: money.stackexchange.com/users/1113/Dheer
score: 4
sents: text: Yes, somebody could buy the shares, receive the dividend, and then sell the shares back.
text: However, the price he would get when he sells the shares back is, ignoring other reasons for the price to change, exactly the amount he paid minus the dividend.
answer_details: author: money.stackexchange.com/users/1816/Andrew J. Brehm
score: 3
sents: text: In addition to the other answers it's also noteworthy that the stock exchanges themselves adjust the price quotes via their ex-div mechanism.
text: All limit orders present in the book when the stock goes ex-div will be adjusted by the dividend.
text: Which means you can't even get "accidentally" filled in the very unlikely case that everyone forgot to adjust their quotes.
answer_details: author: money.stackexchange.com/users/4098/hroptatyr
score: 2

Summary of the answers:
Dividends are tied to a date. You can't exploit the drop in price by short-selling. You would have to pay back the dividend.
Dividends cannot really be exploited. They are tied to an ex-dividend date. In addition, you cannot exploit the drop in price by short-selling, as you would owe the dividend to whoever has lent you the stock. Somebody could, in principle buy shares, receive the dividend and then sell the shares back, but the price they would get on selling back would be the same as they paid, minus the dividend. Also, the stock exchanges themselves adjust the price quotes via their ex-div mechanism.