Playing around with ex dividend dates.

Grizzly

Frequent Poster
Messages
791
I own a share that goes ex dividend on the 21st of this month. I notice that there are a lot of people who chase dividends. A quick in and out to get the dividend and then sell.

I noticed a lot of activity about 11 days before this share went ex dividend hence my question.

If I purchase this share on a T10 basis. I don't actually pay for the share for 10 days. Do you actually become the registered owner of the share when you make the purchase or do you only own the share when you pay for it 10 days later?

I wondered if people were purchasing the share about 11 days out on a T10 basis say in this case on the 10th of the month for payment on the 20th of the month. Then being eligible for the dividend.

Also selling the share on a T10 basis, in this case, selling them on the 13th of the month, for settlement on the 23rd of the month.
 

EmmDee

Registered User
Messages
145
So... there are two sets of dates that are relevant for your question. One set to do with the purchase / sale of the equity and the second to do with the dividend.

When you buy a security you have a "trade date" (TD) - the day the trade is executed which could be different from the day you call the broker if you call late in the day and the "settlement date" (SD) - the day you pay for and receive the shares. You talk about buying on a T10 basis - I'm surprised at that. Most western markets are T+2 or T+3. Some have even moved to T+1. But the settlement cycle is pretty much irrelevant.

On dividends, there are three dates; Ex Dividend Date, Record Date and Pay Date (these days, the first two are often the same - they used not be). In essence, any one who holds the equity before the Ex Date is entitled to the dividend. Anyone who buys on or after the ex date is not (there can be a bit of messing around on the institutional trading side where some trades on Ex Date are "cum dividend" - but you can ignore that tbh).

The secret is that irrespective of registration of ownership (or settlement cycle), you have full economic participation in an equity from TD. And if TD is before Ex Date you receive the dividend. Likewise, if you sell the security on or after Ex Date, you will still receive the dividend on Pay Date (even though it may not be in your name any longer)
 

jpd

Frequent Poster
Messages
1,681
Of course, you will probably make a capital loss as the market value of the share generally goes down by the amount of the dividend on the ex-dividend day.

This is without factoring in the costs of buying and selling the shares.

So there is little to be gained by this tactic unless you have capital gains to be offset against these gains and even this may fall foul of the bed & breakfast laws around offsetting losses
 
Top