If you intend to buy and sell stocks immediately before and after their ex-dividend dates simply to capture the dividends, you may face a large tax bill. Does the IB mark you down for spelling mistakes in subjects other than languages such as History When Im under time pressure I make some stupid spelling. This means your first couple of dividends will be taxed at your ordinary income tax rate. Although most corporate dividends are "qualified" and taxed at a special rate, you have to hold a stock for 61 days or more to earn that status. Taxation is another concern for dividend investors. However, it doesn't affect the value of the company on the open market. Payout dates are important to investors, as that is the day they actually receive their money. From an investment perspective, the important date is the ex-dividend date, as that is the date that determines whether you are entitled to a dividend or not. Those dates are mainly administrative markers that don't affect the value of the stock. On the record and payout dates, there are no price adjustments made by the stock exchanges. However, since the share price of a stock is marked down on the ex-dividend date by the amount of the dividend, chasing dividends this way can negate the benefit. Still others may buy a stock before the ex-dividend date to capture that dividend, then sell the stock the next day. Since companies usually pay dividends every quarter, an investor who buys on the ex-dividend date may get the stock at a lower price but will still be entitled to a dividend three months later. Some investors may choose to buy a stock specifically on the ex-dividend date. Similarly, if investor perception of the value of a stock on any given day sours, the stock may sell off much more than the simple drop due to the dividend. If a stock is deemed to be undervalued by investors, the stock price may be bid up, even on the ex-dividend date.
However, the market is guided by many other forces. For example, if a stock trades at $50 per share and pays out a $0.25 quarterly dividend, the stock will be marked down to open at $49.75 per share. Stock market specialists will mark down the price of a stock on its ex-dividend date by the amount of the dividend.
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