> So if you get a 3% dividend a year, the stock price is dropping by the same amount.
Here is the reason the stock price drops by the dividend amount.
Dividends are issued to the person holding the stock at the date the dividend is issued.
This means it is possible to buy the stock one day before the dividend issue date, hold the stock for another day which then entitles you to the dividend and then sell the stock the following day.
So you can hold the stock for just three days yet still get the dividend and the price drop accounts for this possibility.
If the price did not drop that would effectively equate to free money, as you could take out a three day loan to get the dividend and the interest on that loan would be way less than the dividend amount.
As such it is capital market forces that is causing the share price to drop.
Here is the reason the stock price drops by the dividend amount.
Dividends are issued to the person holding the stock at the date the dividend is issued.
This means it is possible to buy the stock one day before the dividend issue date, hold the stock for another day which then entitles you to the dividend and then sell the stock the following day.
So you can hold the stock for just three days yet still get the dividend and the price drop accounts for this possibility.
If the price did not drop that would effectively equate to free money, as you could take out a three day loan to get the dividend and the interest on that loan would be way less than the dividend amount.
As such it is capital market forces that is causing the share price to drop.