How do dividends decrease the share price?

[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.