Markets · 6 pages · 12 min

Why a dividend is not free money

The cash a dividend pays is offset, other things equal, by a lower share price.

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From the opening

The cash from a dividend comes out of the company, so the share that remains is a claim on a smaller pile of assets. Other things equal, the market price falls by about the dividend on the ex-dividend date, which means the holder has swapped a slice of the share for cash, not added cash on top of the old share. The opening covers cash comes out of the firm, the ex-date price drops, and seller and buyer split value.

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Inside

Cash comes out of the firm
The ex-date price drops
Seller and buyer split value
Other news can hide it
Where the idea stops applying
A distinction worth keeping

Sources

Ex-dividend price adjustment
Dividend yield versus price

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Why a dividend is not free money

From the opening

Inside

Sources

Also on the desk