Selling shares before dividend date

D

ddldub

Registered User
Messages
7
Hi All,

I have shares that I want to sell, but a dividend is due for payment in May. I read that share prices drop just after the dividend is paid and this drop is usually roughly equivalent to the value of the dividend. Is that correct? If it is, then it would make sense for me to sell now and pay CGT instead of income tax on the value of the dividend/drop. Seems too straightforward, so wondering if anyone here has any advice.

Thanks.
 
If you sell before the shares go ex-dividend, then yes you will pay more CGT on the shares as the price will fall by the dividend amount on that date - all other things being equal
 
jpd said:
If you sell before the shares go ex-dividend, then yes you will pay more CGT on the shares as the price will fall by the dividend amount on that date - all other things being equal
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Thanks @jpd, but that is better than paying income tax, USC etc. so sounds like it's the better option, right?
 
Who can tell - the shares might go up 20% next month?

In any case, are we talking about a lot of dividend income? You will have to pay CGT in any case, assuming you have made a gain
 
You are talking about speculation, timing the market.
If its the share I think you have, and its still in freefall today.
Dont forget you will have transaction costs - comm. and stampduty, when you rebuy it.
 
I'm not really talking about timing the market. I have more or less decided to sell and will incur a capital gain as I have held the shares for a long time. The dividend is worth about €900 before tax, so I'm really just wondering if I should wait for the dividend before selling - not taking any other potential rise or fall in the share price into account.
 
If you sell now, then you will be paying CGT on the sales proceeds less the cost of acquistion

If you sell on or after the ex-dividend date, then you will pay income tax, etc on the € 900, say € 468 if your marginal income rate is 40% + PRSI 4% and USC 8% = 52% less the reduced CGT at 33% = € 300 so you are looking at a saving of € 168

Of course, the share price does not always fall by the exact amount of the dividend, so these figures are only a guide
 
You also need to take into account your annual exemption of 1270 before you pay any CGT on any profits on the sale of shares that you will incur in the year. So you need to figure out your CGT liability vs your income tax position if you decide to sell the shares before the dividend is paid to determine which is the most cost effective.
 
ddldub said:
I read that share prices drop just after the dividend is paid and this drop is usually roughly equivalent to the value of the dividend. Is that correct?
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Yep, that is 100% correct.

Now there are any number of other factors that may impact the share price at the time but it is axiomatic that the share price will fall by the amount of the dividend payment.

So, all being equal, you would be better off selling now rather than paying income tax on the dividend (assuming your marginal rate is higher than the CGT rate).

But I would emphasise that there are any number of factors other than the dividend that can effect the share price and nobody can predict the future.
 
Quite often the share price will increase a few days before the Ex date as the dividend chasers pile in. In my own experience my shares usually drop by up to twice the dividend amount the day they go Ex. However they can recover fairly quickly.

I now wait for the dividend chasers to pile in and often sell the day before the Ex date.
 
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