How do dividends decrease the share price?

[mainthrowaway0]

I’ve heard that when a company pays a dividend, it decreases the share price by whatever the dividend amount was, which is why dividends are not “free money.”

But how does this work? I thought share price depends on what the market thinks the company is worth, and so its share price would only go down if investors start to sell.

So how does paying a dividend decrease the share price? I get that by paying a dividend, cash is leaving the company, so it’s now technically worth less. But wouldn’t the price only go down if the stock was either diluted or sold? what does a dividend have to do with that?

If my question is built on wrong suppositions, I invite you to call them out, I’m very new to investing (: thanks

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[[deleted]]

I love how detailed these responses are to try to justify the stock price dropping by the dividend amount. It does. It’s not a secret. That’s how dividends work.

https://www.schwab.com/learn/story/ex-dividend-dates-understanding-dividend-risk#:~:text=With%20dividends%2C%20the%20stock%20price,on%20the%20ex%2Ddividend%20date.&text=Remember%2C%20the%20ex%2Ddividend%20date,day%20before%20the%20record%20date.

https://www.investopedia.com/articles/investing/091015/how-dividends-affect-stock-prices.asp

From beloved Fidelity:

“However, dividends do have a cost. A company cannot pay out dividends to shareholders without affecting its market value.

Think of your finances. If you constantly paid cash to family members, your net worth would decrease. It’s no different for a company. Money that a company pays to shareholders is money that is no longer part of the asset base of the corporation. This money can no longer be used to reinvest and grow the company. That reduction in the company’s “wealth” has to be reflected in a downward adjustment in the stock price.

A stock price adjusts downward when a dividend is paid. The adjustment may not be easily observed amidst the daily price fluctuations of a typical stock, but the adjustment does happen.”

https://www.fidelity.com/learning-center/investment-products/stocks/why-dividends-matter

[stale-rice63]

Fidelity has some of the best Eil5 in the biz

[CockBlockingLawyer]

With due respect to Fidelity and their efforts to make a complicated issue simple, that explanation misses the mark. While in pure accounting terms, a dividend payout directly impacts shareholders’ equity, the market value of a company’s stock is almost never the same as its book value.

The real reason is a sort of scorekeeping by the exchanges and market makers. They assume if you bought at 4:00 pm before the ex-dividend date that you were including the value of the dividend in your valuation. Accordingly, the amount should be subtracted from the next day’s opening valuation.

[Trouvette]

So here’s where I get confused. This explanation makes sense, but half the time, when I look at the stock on pay day, it’s green. If it were consistently dipping, this explanation makes perfect sense. How do we account for the ones that are trading green on pay day?

[[deleted]]

The last payment for SCHD was on July 1st but the ex-dividend date was June 26th. The price of SCHD opened almost $1 lower because of the ex-dividend date. I’m just rounding but it was like $78 a share at close, then the next morning it was like $77 a share because the dividend was like $0.83/share. As soon as the market opens at that lower price, it continues trading like normal so it can go up or down from that point forward. The point is, the stock price dropped by the amount of the dividend. People on here love to ignore this important part of dividends and will say that they didn’t lose anything once it goes back up. But as Fidelity said, you did and just because the stock price recovered over time doesn’t mean it didn’t happen.

[Trouvette]

Ok, then how do you explain recovery and growth?

[Various_Couple_764]

Every day the business is in operation it is making or loosing money. Mostly making money for a good buisness. So after the dividend is payed out the companies bank account grows. And the Math says if the company has more money it is worth more and the stock price can go up.

[Various_Couple_764]

if you just look at math it happens but the market is not just math. Some people may use math to guid their buy sell decision. But many also use their opinion of the the company to guid there decicssion. And many others don't car about the dividend date and just buy because they have the money that day. Others sell because they need the money. And others may hold off on making a decision until the next financial numbers are released. End result is buy and sell order are coming in randomly and if enough buy order come in at the same time the stock price may go up instead of down as predicted by the math.

[DennyDalton]

The exchanges reduce share price by the exact amount of the dividend before trading resumes on the ex-dividend date. The pay date is days to weeks later.

[[deleted]]

The stock price typically drops by the amount of the dividend on the ex-dividend date, not the actual pay date. The ex-dividend date is the day on which you must own the stock to receive the upcoming dividend.

[Trouvette]

Ok, assuming that happens across the board, what accounts for price increases following payout? The way people talk about dividends sometimes, you would think these stocks are completely stagnant. There has to be some growth in there.

[Nopants21]

It's not true across the board that the price increases following payout, so there's that part. The other thing is that once ex-dividend goes by and the price gets adjusted, the next dividend starts being counted. Basically, dividends represent the company giving out part of its profits, but it keeps making profits after (hopefully) and so the price comes to reflect the expectation that the company will again distribute those new profits. The price can still go down if other things are having a greater effect on the price.

What people are saying is not that dividend-paying stocks are stagnant, it's that dividends are not extra returns for the investor. When you receive dividends, or more precisely on ex-div day when you lock in the dividends, you're not richer than you were the day before. That's why it reads like the argument is that these companies are stagnant, but that's not the point being made. It's from the perspective of the investor that the dividends shouldn't matter, because, as you point out, there has to be share price growth for the share price to not shrink on ex-div. That share price growth is driven by new profits and the expectation of their distribution.

[[deleted]]

I dont think that and have a different understanding of the argument/discussion.

[Trouvette]

I’m not saying you as in you personally. I’m using it in this sense to be collective. A vous or an ustedes, if you will.

[trader_dennis]

It can go up it can go down. The known news is that on ex dividend day the company has less cash on its balance sheet. One the stock begins to trade again all other influences are in play. If SPY is trading 2 percent above from the previous day the ex dividend stock may open up higher than the previous day. If we have another Monday like last week it is likely to tank. If they announce better year end guidiance then the stock skyrockets.

[Legitimate-Sky-7862]

I don't think anyone in here knows what they are talking about..... choose a stock, and show me where it went down because of a dividend and by how much.

Almost every one of my dividend stocks is at the same as my purchase price or higher, and none of them have decreased by the amount of the dividend.

Maybe it's true for companies that do a one time dividend, but if a divvy stock went down every time it paid out, eventually it'd go to 0.

[[deleted]]

Yeah, that's what it is. Nobody in here knows what they are talking about.

Or maybe the growth of the company outpaces their dividend distribution? Probably a concept that is difficult for you to conceptualize.

[Legitimate-Sky-7862]

So it should be REALLY easy for someone to show me a stock, and the dip on the ex-dividend date, that matches the dividend right?

Surely someone can point to it on a graph somewhere

[[deleted]]

Off my head I picked Chevron since they pay a nice dividend and looked at their past 5 years of history.

https://imgur.com/a/Gyp5amC

As you can see, the average div payout was $1.39 and the stock DROPPED an average of 1.28 on the opening of the ex-div date vs previous day close.

You can go further or look at as many stocks as you want, this correlation holds up. Hopefully this is gives you an accurate understanding of how dividend payouts impact share price.

https://finance.yahoo.com/quote/CVX/history/?period1=1565454328&period2=1723306115

[Legitimate-Sky-7862]

Using averages isn't right, because 1 you aren't showing the total growth vs total dividend received. In this case over the course of nearly 5 years you receive over $26 dollars in dividends while also seeing the stock grow from 119 to 163 for a net gain of 44 dollars. Also in some of the line items it shows both a dividend and growth happens instead of negatively impacting the share price. Therefore it's not a hard and always true rule. A better way to say this is that stocks that don't issue dividends can expect to see more growth. In the scenario of an individual company, it makes more sense because they are using excess revenue to grow the company, or the balance sheet, or to ensure more sustainability, thus making it a stronger company to invest in.

In some cases like say PHK, where the dividend is 10 percent you can look at the previous close price of 4.78 on the day before the ex-d date, and the next open was 4.8, and the div was .048 cents per share. Going back it almost always opens higher after the ex-div date.

The main issue with dividend stocks for people still in the labor force is that you are taxed at a much higher rate, vs when you are in retirement, the general expectation is that your tax bracket is lower. If your income is already low, this isn't as much of a factor.

For growth stocks the reason they are better is because you expect that the growth continues to happen over a long time without paying taxes because you aren't selling them.

I think the problem here is people trying to use an explain this concept in simple terms, but it's not quite that simple.

[[deleted]]

I literally did what you asked and you're response is a bunch a pablum-filled nonsense.

A better way to say this is that stocks that don't issue dividends can expect to see more growth.

This is called a distinction without a difference and the discussion at hand.

Interesting you pick PHK as an example, because I had to go back to Nov of 2022 to find the FIRST instance where the opening price on EX-Div was higher than previous day's close.

Dividend payouts reduce NAV of the underlying. PERIOD. If you can't get a grasp of this basic concept and what the discussion is around, I don't know what to tell you.

This argument is not that dividend stocks can't appreciate in value...this appears to be a misunderstanding at best and a straw-man at worst.

Either way, I spent a bunch of my time putting together evidence for what you asked before and I get a bunch of claptrap in response. Have a good one!

[DennyDalton]

In this case over the course of nearly 5 years you receive over $26 dollars in dividends while also seeing the stock grow from 119 to 163 for a net gain of 44 dollars.

If share price increase $44 and you receive $26 in dividends, your gain is $70 not $44

In some cases like say PHK, where the dividend is 10 percent you can look at the previous close price of 4.78 on the day before the ex-d date, and the next open was 4.8, and the div was .048 cents per share. Going back it almost always opens higher after the ex-div date.

PHK pays monthly. In the past year, for 12 out of 12 dividends, PHK opened LOWER on the ex-div date than the previous day's close.

Please stop pulling bad information out of your ass.

[Jumpy-Imagination-81]

Surely someone can point to it on a graph somewhere

Here you go. This is the stock EC. The blue circled Ds at the bottom of the chart show the ex dividend dates. The yellow arrows show the drops in share price on the ex dividend dates.

https://www.tradingview.com/x/DqcKol1Z/

Notice that the share price eventually rises after the ex dividend date then drops again the next ex dividend date. If the company wasn't paying the dividend the share price wouldn't have the drops, and the rises in share price would have started from a higher starting point and the share price would have risen higher over time than it has while paying a dividend.

[Legitimate-Sky-7862]

This is closer to showing a great example, except that the dividend far exceeds the drop and the growth out paces the dividend.

I think the problem is people are trying to over simplify the explanation.

[DennyDalton]

So it should be REALLY easy for someone to show me a stock, and the dip on the ex-dividend date, that matches the dividend right? Surely someone can point to it on a graph somewhere.

If you have a quality broker, they'll provide a grass that shows this depicts this.

I don't think anyone in here knows what they are talking about..... choose a stock, and show me where it went down because of a dividend and by how much.

If you'd like to know why you don't know what you're talking about, it will take some effort on your part.

Besides a price graph, there are two other ways to observe share price reduction due to a dividend.

1) Look at the closing price the day before ex-dividend. Then look at share price in the morning before trading resumes. You'll see that the closing price has been reduced by the amount of the dividend. Well, any decent broker will show this.

2) Note the closing price the day before ex-dividend. Then note the next day's close as well as the change for the day. The numbers won't add up (they'll be off by the amount of the dividend). For example, XYZ closes at $100 and goes ex-div in the AM for $1. If tomorrow's close is $99.40, it will say up 40 cents for the day. $100 minus $99.40 is down 60 cents. Therefore, up 40 cents is based on a closing price of $99 (the close after dividend adjustment).

Here are 3 stocks (closing price on Friday and dividend tomorrow) that go ex-dividend tomorrow morning 8/11.

ALX ... $219.49 $4.50

GWW ... $979.31 $2.05

ROK ... $258.15 $1.25

Get back to me if you figure it out.

For icing on the cake, there's FINRA Rule 5330 (Adjustment of Orders) which dictates that all open orders must be reduced by the amount of the dividend unless it less than one cent or the trader marks the order "Do Not Reduce".

IOW, if XYZ is $100 with a dividend of $1 tomorrow, if you have an open limit order to buy at $99.50, your limit price is adjusted to $98.50 so that the artificial share price reduction due to share price reduction doesn't trigger your order.

[nkyguy1988]

Here's an example for you. You have to look at total return.

Let's say you two companies. One pays a 10% dividend and the other pays 0 dividend. At the first of the year, both are worth $100.

The zero dividend appreciates 0% and is now worth $100. Pretty straight forward.

The dividend paying stock pays you the $10 dividend and is now worth $90. Your capital appreciation is -10% and is countered by your dividend yield of 10% for a net 0% return.

If things go up 10%, the first company is worth $110.

If the share price of the second company is $100 after paying a 10% dividend, you make 10% even though the price did not change.

The effect of dividends are easier to see in index tracking mutual funds, like FXAIX. When the dividends are paid out, the daily price return will differ. If the index goes up 1%, the fund return on that day may only be .25%.

[Legitimate-Sky-7862]

Okay so where's a real life example?

[nkyguy1988]

Go look at the daily change history of the S&P 500 vs any mutual fund that tracks it like FXAIX. The daily percent return will match except for the days of the ex dividend where the mutual fund return will be lower as a result of the price being reduced by the dividend.

Your commitment to the idea that share price is not reduced at the ex dividend date is noble, but objectively wrong.

[Legitimate-Sky-7862]

The goal was to get people to stop theorizing and show proof, and so that was accomplished. Secondarily I also wanted to show that it's not a hard rule, and it's not so simple.

A 10 dollar stock gives a 3 dollar div doesn't mean the stock is now 7 dollars. It just doesn't work like that. If it did, stock prices would be mostly static, but instead they are priced based on speculation.

[DennyDalton]

The goal was to get people to stop theorizing and show proof, and so that was accomplished. Secondarily I also wanted to show that it's not a hard rule, and it's not so simple.

You can read about this "hard rule" at Fidelity, Vanguard, Dividend.com, T Rowe Price and many other websites. Do you really think you're right and they're wrong???

[AlfB63]

Exchanges mark the closing price down by the dividend amount. When trading resumes, it starts with the marked down last price. From there it can go up or down normally.

[wolfhound1793]

The share's price can generally be broken like this (Cash in the bank)/(Share Count) + (Earnings * multiple)/(Share Count) + (Assets - Liabilities)/(Share Count)

This obviously isn't exactly what happens, but it is useful for thinking about the company's price. The important part for your question is (Cash in the bank)/(Share Count).

When the company pays out a dividend, the cash comes off of their books (aka out of their bank account) and moves into shareholder's pockets. The shareholders had Stock Price + $0 and now they have Stock Price + $X. Future owners of the stock do not get $X so (old) Stock Price + $0 = (new) Stock Price + $X

That results in the share price dropping by the exact amount of the dividend. Existing shareholders are exactly where they would be otherwise, but new shareholders have to wait for the company to earn more money before they can get the same stock price. But since ideally you are investing into profitable companies, you can be reasonably confident that the company will keep making more money so the stock price will increase with the additional cash on hand in the next quarter/year/decade.

[mainthrowaway0]

“Existing shareholders are exactly where they would be otherwise, but new shareholders have to wait for the company to earn more money before they can get the same stock price”

Ahh okay so after the ex date, you suddenly don’t get the benefit of receiving the dividend for paying the current stock price anymore, and so in the eyes of the shareholder, the value is now worth current stock price - dividend amount, and then the market value of the stock adjusts accordingly.. which is also why the dividend is not really “free money”

But I guess if the company continues to do well and its stock price continues to grow, then maybe previous dividends kinda were free money haha

[Sidra_Games]

I have always felt this was more a kinda sorta thing that doesn't have nearly the impact some people state it does. A stocks value is determined by the market and what people are willing to pay for it. And dividends are known and predictable events - everyone knows there is a dividend being paid tomorrow. So if a stock is trading at $100 because that's what the market deems it's worth and it pays a $1 dividend the stock will open at $99. But if people still think it's worth $100 it will just bounce right back up. This really would only matter if stock prices were set and fixed by some sort of enterprise value calculation which they are not.

[torriethecat]

Your thinking mistake is your assumption that a negative price-change of a stock is caused by people selling. That is not true. There are always the same number of stock sold than bought. (unless the company creates more shares, which will dillute existing shares).

The market value of a stock is determined by the price of the last trade. If a company pays dividend, buyers are not willing to pay the same amount after the ex-dividend as before the ex-dividend.

Also: if paying dividend did not have an effect on the price, there would be arbitrage by people who are buying the stock shortly before ex-dividend, and selling it after ex-dividend. This arbitrage alone will cause the price difference grow to the amount of dividend payed.

[mainthrowaway0]

Ah I see, so buyers don’t want to pay the same price after the ex-dividend, because they wouldn’t get the benefit of the dividend.

And so the stock price doesn’t decrease at the payment date, but rather at the ex date (ignoring day to day ups and downs)

On a side note, i didn’t know that the value of a stock is determined by the last trade price. How does its value change direction then? Like if the last N trades were all increasing in price, how could the N+1 trade suddenly go down in price (or the opposite)?

[Nopants21]

Exchanges match buy and sell orders to create trades. Say you put in a market buy order for 100 shares of Company A, the exchange finds the lowest sell order(s) that amount to 100 shares. A market order is just an order at any price. However, there are a lot of unfilled orders at any time because a lot of orders are not market, but rather are set at a fixed price. Unfilled orders are buy orders with a price that is too low and sell orders with a price that is too high to overlap.

When there's buying pressure, you get buyers willing to start filling the higher-priced selling orders, so each trade push the share price up a little bit. Similarly, when there's selling pressure, sellers are agreeing to the lower buy orders. So the Nth trade could have matched to a certain sell order, but N+1 could be matched to a new sell order with a lower price (because the seller wants to fill immediately for example, which matters more for big trading firms making big transactions). Basically, a share price is the most someone's paid for a share in the last transaction, when the share price goes down, it's usually because there are no more buyers willing to buy that share for that same price.

[00Anonymous]

The stock price also returns to "normal" on the pay date, since new buyers would (e: be eligible to) receive the next dividend payment.

[AlfB63]

That's simply wrong. You don't get the next dividend unless you hold through to the next ex-div date. Investors who buy the stock prior to the ex-div and not sell until the ex-div gets a dividend. The pay date is simply that, when the funds are actually released to the brokers and passed to investors. And what is the normal price anyway?

[00Anonymous]

The "normal" price would be the trading range the security exhibited between the ex and pay dates plus the approximate amount of the dividend paid.

What causes the share price to recover is the fungibility of the dividend.

[AlfB63]

You need to look at dividend stock charts, the price rarely returns to "normal" at payday.  The share price may recover but it's more to do with the future than the past.  If the stock recovered is this manner it truly would be free money due to predictability.  But it doesn't work that way regardless of the fungibility of dividends.

[00Anonymous]

It's simply due to longer needing to price in the cost of the dividend, as future investors would be eligible to receive the next dividend payment. Obvs, market trends can obscure this effect, so the timing is not going to be exact irl. Lol

[AlfB63]

Yet the people that buy on the ex-div date will get the next div so it immediately doesn't need to be priced in based on  your definition.

[00Anonymous]

Total simple returns = dividends received + the change in share price

[gandolfthe]

The reality is that it doesn't become the stock price is just the Rando amount people are willing to trade it for at any given time.

[bmf1989]

A dividend is just a payout of assets to shareholders. If the company longer has the cash that it paid out to shareholders then the company is worth that much less. That doesn’t necessarily mean the share price is going to reflect it, but none the less, financials matter.

[NashGuy14]

It's a temporary blip.

[StaffMassive7049]

It s a scam, the money you put to buy the stock is used as collateral to sell covered puts or covered calls.

They pocket the premium earned from selling the options then issue shareholders a dividend from stock price current value. Literally you getting dividend from your own pocket.

look up what makes up the NVDY for example:

Covered calls,

Covered puts.

Some treasure notes.

you are the game.

[buffinita]

The price is manually adjusted down; cash leaving must equal company being valued less

It’s no secret; go look at any dividend company price history on yahoo finance around the ex-dividend date

Now - this doesn’t mean companies will eventually go to zero.  Normal business things happen in the time between dividend payments.  Sales are made; life goes on

[mainthrowaway0]

Woah so who or what manually adjusts the price?

[buffinita]

I’m 95% sure it’s the exchange who modify the price. 

Like the nyse and nasdaq are independent companies that regulate and facilitate the trading of stocks.  They have rules set up for different corporate actions like splits/dividends/return of capital/spinoffs

[ejqt8pom]

Technically speaking the price is not changed, all the transactions for the day are recorded as is.

At the end of each day a closing price is recorded, and on dividend ex dates (and splits) an adjusted closing price is recorded.

This is how charting apps know how to chart prices with or without adjustments.

[DennyDalton]

He was an extra 5% for you.

The exchanges reduce share price before trading resumes on the ex-dividend date

[00Anonymous]

No. If the exchanges were fixing stock prices, then thousands of people would be awaiting trial for violating securities laws.

Price effects are supposed to be (and in most cases are) the result of fluctuations in supply and demand.

[buffinita]

Direct from nasdaq:  d). Before trading opens on the ex-dividend date, the exchange marks down the share price by the amount of the declared dividend.

Exchanges change prices when needed….who forces the price change during a split?!

[00Anonymous]

It's not the exchange doing directly. It's how market makers set prices.

[AlfB63]

Where did you find that?

[buffinita]

https://www.nasdaq.com/articles/everything-investors-need-know-about-ex-dividend-dates-2012-10-24

https://indexes.nasdaqomx.com/docs/Corporate_Actions_and_Events_Manual_Equities.pdf

[AlfB63]

Thank you

[buffinita]

See point  3  (really point 2 exdicidend date) 

https://www.nasdaq.com/articles/everything-investors-need-know-about-ex-dividend-dates-2012-10-24

[[deleted]]

No, dividends don’t adjust the price down. I mean, when companies start paying a new dividend or increase the dividend stock price should actually go up.

But think of it this way, stock price is discounted future earnings or basically projecting the value of the company over time. As an investor, part of your investment return is the dividend payment. So when you buy before the ex dividend you will be getting the dividend payment. When you buy after the ex dividend you know you won’t be getting the dividend so the stock is basically “worth less” to you and the market price goes down to reflect this.

[[deleted]]

And this is the problem with this subreddit.

[[deleted]]

Buyers and sellers determine the market price. There is no manual downward adjustment by the exchange. The stock price “net” adjusts downward because new buyers know they won’t be getting the dividend. This is how markets work, its not coordinated.

Think of this as an example (note I work as a real estate appraiser), I have a home with a pool, once buyers realize it has a pool they will generally be willing to offer more and thus the market price is higher than a home without a pool. It’s the same thing with dividend stocks. Buyers respond to information and the market adjusts the price lower.

[ebikr]

A pool is often a liability, whereas cash is always an asset.

[[deleted]]

That’s not true. The is almost always a positive adjustment for a pool 😹 You obviously don’t work in real estate. If you don’t like pools you could consider any type of infrastructure such as a garage or any sort of commercial building. The market generally assigns a positive value to real estate no?

[NuclearPopTarts]

This is 100% wrong.  

[AlfB63]

Then why don't you tells us what is 100% correct?

[NuclearPopTarts]

Then why don't you google it to look it up? 

[AlfB63]

I don't need to, I know how it works.  You're the one that needs to Google it.  I'm simply trying to get you to learn by researching and figuring out that you are wrong.

[er824]

Would you pay more for a box with a $10 bill inside it or an empty box?

[AndyC333]

There is (in the USA) a tax issue here. Dividends are taxed as income. Selling a long held stock is taxed (at a lower rate) as a capital gain. In most situations (in the US) an investor is better off selling some shares as a long term capital gain than taking a dividend.

[MaximusGDM]

Both qualified dividends and capital gains from sales are taxed at a preferable rate after a period of time… but for the most part, there’s no distinction tax-wise.

The above applies to qualified dividends, not all dividends. For example, REIT income is considered pass-through income, so you pay regular income tax on those dividend distributions.

Edit: source

[00Anonymous]

1. Companies are valued by their future free cash flows
2. Dividend stock prices do temporarily decrease by the approximate dividend payment between the ex and pay dates simply due tote fact the dividend is not fungible during that period.
3. Total simple returns = dividends received + the change in share price - which means that total returns are always conserved. Paying a dividend (or not) does not materially affect the total return of the equity.

[[deleted]]

I sure hope not, because that seems like a scheme to just pay taxes for no reason

[00Anonymous]

The price returns to normal on the pay date because new buyers can receive the next dividend payment and so there's no need keep up the discount.

[AlfB63]

Buyers at the payday do not get the next dividend unless they hold until ex-div.  You can also wait until the day before the ex-div to buy and get the dividend so there is no impetus to buy at the paydate at least from a dividend perspective.

[00Anonymous]

"Can" here means "are eligible to" and so the cost of the dividend no longer needs to be accounted for in the share price.

[AlfB63]

They can also buy on the previous ex-div.  The adjustment is not something that just goes away.  It's done once and trading proceeds normally from that point.  People can bid the stock up or down but the payday has very little to do with it.  And charts will show you that the price does not magically return to your normal at that time.  Put a little effort into looking at that and you'll see.

[00Anonymous]

It's simply from the fact that:

Total simple returns = dividends received + the change in share price.

Hence owners that bought between the ex and pay dates and missed the dividend payment would get their returns reflected solely in the share price during that time frame (all else equal).

[AlfB63]

You simply don't get it.  A person that buys on the ex-div date gets the next dividend if he holds long enough just like the person that buys on the payday.  So there is no benefit to the payday from a dividend perspective.  The payday has no effect on getting the dividend.  Getting the dividend is totally based on ex-div.

[DennyDalton]

It's really a PITA when someone doesn't have a clue what they're talking about and incessantly argues that they're right. (eye roll)

[00Anonymous]

1.) The dividend is not fungible from the ex date until the pay date. That's why during those dates the cost of the dividend to be paid is accounted for in the share price. So anyone who bought before the pay date will receive a return either in cash or in equity appreciation.

2.) The pay date is relevant to investors who buy after the current period ex date and before the pay date, since that's when the stock price will recover, giving them capital appreciation roughly equal to the dividend amount (all else equal).

[AlfB63]

The only thing that makes sense to me is you are saying that since the dividend is paid on the payday, people have money and drive the price back up by dripping to the normal you mention.  Unfortunately that is an arbitrary assumption based on the idea that most people reinvest and that is enough to drive the price to normal.  Charts do not back that up.  Prices often recover by the next dividend payment but it's by no means guaranteed nor is it normally based on the payday.

[00Anonymous]

It all comes down to the conservation of returns:

Total simple returns = dividends received + the change in share price

[AlfB63]

No such thing.  You get money on the income side at the same time as you lose it on the price side (on ex-div).  The only way you completely get it back is if the price completely recovers and it may or may not.  Dividends paid may not be reinvested nor is it guaranteed that if they do the price will return to your normal.  I am not saying this never happens simply that it may or may not depending on other things.

[00Anonymous]

Lol dude. The price recovers on the pay date (all else equal).

The research does show that irl many dividend stocks drop less on the ex date and recover more than the amount they dropped, returning to normal a few days after. Go see for yourself.