Expert: Wong Chin Woon - 8/9/2004

Question
Hello,
I was told if you own a stock on their dividend day ..even if you bought it the day before.........,you will receive the full dividend pay out..? ..is this correct and is it a way to pick up small profits...?
Regards Rolfe

Answer
Hi Rolfe,

Not exactly.....Over here in Singapore, we called it CD, meaning cum dividends period. That is, those who already have the shares and those who will buy the share during this CD period, they will be entitled to rec'd the dividends.

So here is what happened: when a company declare that they are going to payout dividends say on 10th Sep, CD period is from now till 01st Sep. If, the payout dividends is good, like microsoft example, a surprise $3 dividends, fund manager will immediately evaluate the market price, that is if they find that the stock price is too low, they will keep buying. Remember the share pay a handsome dividends. A share you own let's say the current price is $28.00, will give you additional $3, that is, total up is $31 exclusive of commission.

In this case, theoritically speaking, the price should move to this level. However, one thing you have to bear in mind. After the CD period, we call it XD, exclude Dividend period. The share's price usually will went down to before dividend price or lower. So, if you bot it at $29.50, than what are you going to do if it start to fall below $26.50? you are going to lose back your dividend plus commission...

So, please consult your broker first instead of just listening to others...

That's all for now..cheers

Wong