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Dividend stripping is the practice of buying shares a short period before a dividend is declared, called cum-dividend, and then selling them when they go ex-dividend, when the previous owner is entitled to the dividend. On the day the company trades ex-dividend, theoretically the share price drops by the amount of the dividend.
After a stock goes ex-dividend (when a dividend has just been paid, so there is no anticipation of another imminent dividend payment), the stock price should drop. To calculate the amount of the drop, the traditional method is to view the financial effects of the dividend from the perspective of the company.
The ex-dividend date (coinciding with the reinvestment date for shares held subject to a dividend reinvestment plan) is an investment term involving the timing of payment of dividends on stocks of corporations, income trusts, and other financial holdings, both publicly and privately held.
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The dividend payout ratio can be a helpful metric for comparing dividend stocks. This ratio represents the amount of net income that a company pays out to shareholders in the form of dividends.
The ex-dividend date, i.e. the first date in which a new buyer of shares would not be entitled to the dividend, is the business day prior to the record date (see ex-dividend date for exceptions). In the case of a special dividend of 25% or more, however, special rules that are quite different apply.
This rule requires specialists to reduce open limit orders to buy stock by the dividend amount on the ex-dividend day". [5] Art LaPella 22:45, 11 March 2007 (UTC) [ reply ] The sentence under discussion in this Wikipedia article is "When the market opens on the ex-dividend date, the exchanges automatically decrease the price of the stock by the ...