Archive for February, 2009
Drop in Value, up for the Day (Dividend Adjustment)
In looking at my stock quotes during the day, I could not help but to notice a large drop in price, but green being shown for the daily change. The stock NCTY, traded at 16 on 1/28/2009, but then the following day traded in the low 15s, but showed an increase. The reason, a $1.1 per share cash dividend.
It is amazing how this is factored in perfectly, so the true gain or lose are shown. Basically, to ensure arbitrage is not present, a stock should drop by the same amount of its dividend, if not, you could buy right before the dividend, then sale right after, and pocket the dividend. This also has to do with the term fair value used in pre-market figures. It takes the previous day’s closing price and makes adjustment to show the actual change.
So, if you ever wonder why the stock price is down, but Google or Yahoo are showing an up, look at the dividend.
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