hi Fools,This may be answered simply... and that's why I'm here, I surely do not know.If I buy options in microsoft and they pay another special dividenddo I have the right to convert my option, as a proxy to the stock,and get paid that dividend? I believe that time is soon coming so I eitherbuy the stock ORbuy a larger bundle o' stock via options held...Lead on wise Fools.Best Regards,randyquick.
Hi Randy,I can't answer on the options question, but I can say this about dividends. A dividend payment does not actually make you any money. Whenever any stock pays out a dividend, its stock price drops by the amount of the dividend. In Microsoft's case, suppose they pay out another $3 per share special dividend for a (rough) total of $3 billion. That means that the company now possesses $3 billion less cash -- so the value of Microsoft's business has dropped by $3 billion. In turn, that means that the share price must drop by a proportionate amount of $3.The value of the shares before the dividend payment equals the cash payment plus the share value after the payment. It's a zero-sum game.In short, you can't make money by buying a stock to chase a specific dividend payment.Hope that helps,- Erik
Erik wroteWhenever any stock pays out a dividend, its stock price drops by the amount of the dividend.-I feel impelled to modify the above:Whenever any stock goes ex-dividend, its stock price tends to drop by an amount approximately equal to the dividend.-You can find enough data on Yahoo to see what actually happens.
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