Why does the share price drop on Ex-Dividend date?

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Timestamps:
0:00 - Intro
0:39 - What are dividends?
1:34 - Key dates
2:00 - Ex-dividend date
2:23 - Dividends per share (DPS)
2:56 - Why does the price drop?
4:20 - Example 1
5:04 - FMG Example
7:08 - 3 directions the price can go
8:21 - FMG was already going down
9:38 - Should you buy on the Ex-D date?

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Disclaimer:
The information provided in this video is general in nature only and does not constitute personal financial advice. You should also consider seeking the advice of an investment advisor who holds an Australian financial services (AFS) licence or is a representative of an AFS licensee. Be sure to work with someone who understands your investment objectives and tolerance for risk. Your investment advisor should understand these products, be able to explain whether or how they fit with your objectives, and be willing to monitor your investment alongside you. There are some Amazon Affiliate links above - if you purchase from there, at no additional cost to you, I will earn a small commission for each sale.

[EthanRooshock]

It's definitely something to keep in mind when looking at share prices when it's close to dividend dates. If you're holding you just have to remember that the price may change a bit around the dividend date or the announcement date.

Great video, well explained!

[biggstile]

I still dont understand any benefit of a company paying a dividend at all if its a zero net gain.

[RichChao-rx]

I hold shares but doing the covered calls during the ex-date, do i get the dividend....or they don't see i'm holding the shares? thx

[Corpsecreate]

I wrote a comment but it seems to have disappeared.

The reason it drops equal to the value of the dividend is because the market is efficient. If the price is $10 today and will receive a $2 dividend tomorrow, then the price today is actually $12, because I'm guaranteed to get $2 tomorrow if I buy it now. The price you see before the dividend is paid out has already factored in the upcoming payout, so once the ex-dividend date is hit, the price drops by exactly that amount because the value that was already priced into the stock is no longer a factor in its valuation.

This is the reason why AAA zig-zags up and down. The future dividend is priced into valuation of AAA every day, causing the price to rise up until the ex-dividend date, when it then resets back to its low.

[phuccaohoang]

From my understanding, because at first investors invested in the share price of the company with the cost = 10$ and knew they would receive 2$ tomorrow so their total investment would be -10 + 2 = 8$. While the investors purchase shares at ex-dividend date, they would not receive any dividends so in order to compensate for them, the stock price is adjusted to decline equal to the value of dividends. Therefore, they just purchase shares at 8$ without receiving 2$. Is that right ?

[jonathanbrooke]

I think it’s at least 2 days before ex dividend date then it will be pending the day after the ex dividend day I’ve tried this many times.

[OriginalCSY]

I still not getting the point.... if a company x have value 10$ per share. But before earnings which is 1$ and it stay at same because shareholder keep price same, why should go down by the dividend? Yes money leave the company but the company do not pay from the marketcap!! The price should go down just because people sell the stock if they think it will be not good future for the company, not because the company pay div... normally the dividend should not affect the stockprice

[pawanphadke]

Sir mere pass cdsl stock ke 50 share hai aur uska dividend upcoming hai.
Toh agar mei abhi aur 50 share buy krlu toh kya muze pure 100share ka divided milega ya sirf 50 share ka milega.?
Aur ha uski ex divided date ja chuki hai so please reply sir

[maelmare]

The answer to my question. THANK YOU!!

[rvma]

Hi Sanjee, I don't think you've done a dedicated video on franking credits but that would be a good one to get an explanation from you

[anglesea]

In my experience with Australian dividends, the price drops more than the dividend value when ex dividend. Many reasons I suspect. The dividend value is boosted by franking so taken into account. Secondly, a lot of traders and investors exit the share after ex date so a large volume of selling orders driving the price down.

[yassyou]

You forget MAIN factory of the price drop; is the exchange!! So the exchange is valuing the company not the

[Dookitydook]

Hi Sanjee, thanks for all your video's they have been very informative and the very first one actually convinced me to buy into my very first ETF. I was wondering if you could do a video ranking the ETF's with the best franking %?

[oanaperinetti]

if you buy share for 10 and sell fo 8, can you claim the loss to offset the dividend gain?

[yassyou]

If the stock is 10USD and you buy it before the ex date then the price goes to 8 usd! hmm Yeew got 2 usd dividend from my own money and paid taxes from my own too (bonus) now my 10USD is 10-15% = 9.7 USD (this is just because of the exchange) hahahaha