as i am still new to investing, i haven't followed a dividend paying stock until i bought my first recently. do dividend paying stocks often go up before the dividend date and then drop afterward? it seems like it would make sense for short term investors to want stocks right before the dividend and then get rid of them right afterward. also another question i'm going to throw on here is exactly what people mean when they say "long on CNXS". this may seem like a really dumb question, but does "long on CNXS" mean that you're ALREADY long, or that you're PLANNING on holding it long...i assume it means you're already long, but am just asking for clarification...thanks,pres (who just reinvested his first dividend, and who assumes he's short on CNXS, but eventually will be long...)
When someone says they are "long on xxx," it means that they've bought the stocks on the assumption that it will go up in value. It's not that they are thinking of holding the stock for 3 years instead of 3 days. The opposite of "long on xxx" will be to short the stock in anticipation that the stock will sink in price.teli
pres,in regards to your other question, technically, a stock should drop by the amount of dividends after the ex-dividend date. A classic example can be seen when MSFT issued the $3 special dividend. Here's a look at the historical price of MSFT from Yahoo finance.Date Open High Low Close Volume Adj Close*15-Nov-04 27.34 27.50 27.20 27.39 104,468,000 27.2215-Nov-04 $ 3.08 Cash Dividend12-Nov-04 30.16 30.20 29.80 29.97 162,268,992 26.72However, if the dividend is small, there may not be a change in the share price.teli
Date Open High Low Close Volume Adj Close*15-Nov-04 27.34 27.50 27.20 27.39 104,468,000 27.2215-Nov-04 $ 3.08 Cash Dividend12-Nov-04 30.16 30.20 29.80 29.97 162,268,992 26.72
Let's say a company you own is worth $100M just based on cash flow (i.e. the cold hard cash the company will make now and into the future) but also has $50M in cash, then you fair value of the company is around $150M. But let's say the company pays a dividend that costs $10M to pay out; now the company is only worth $140M, correct? So technically any individual share should be worth less by the same proportional amount. But that is ok because the cash in hand plus the shares are worth the same than the share was before you got the cash.However, the true value of a company is pretty subjective because it is based on future earnings. As a result, shares do not actually trade at a fixed price but actually fluctuate a lot.CNXS closed at $21.76 yesterday and then paid out $0.06 in dividends, so that would make it "worth" $21.70 today right? Except normally the market pushes this thing a lot more than that to begin with. So no, the stock should not tumble 5% because the ex-div date passed, it did that because the market was in a bad mood. Keep in mind CNXS has nearly doubled in a very short time, and stockholders may be inclined to profit take every now and then.
I hope you're right, and I hope more people profit take, because I can always use more at a good price. Most of my HGs are up too much to buy right now, and I've got an itchy (buy) trigger finger.
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