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To: Augustus Gloop who wrote (2488)	8/24/1998 12:08:00 PM
From: Jim K.	Respond to of 4814

Dividends: Best explanation I have found,this from a post on RB. ______________________________________________________ THEÿ ONLINEÿ INVESTOR ÿÿ-ÿAug 22 9:03pm MOTLEY FOOL \| THESTREET.COM \| ISDEX \| ONLINE INVESTOR \| FINANCE HOME Help TOP \| Guide to Equity Investing ----------------------------------------------------------------- Guide to Equity Investing (Archive) May 03, 1998 Dividends come in the form of cash or stock. The cash dividend is a way for a company to pay some of its earnings to its shareholders. The stock dividend doesn't do anything for the shareholders except give them more shares (but the share price goes down by exactly the amount of the stock dividend value) nor does it cost the company anything. However, in order to get the cash or the stock dividends, you have to own the stock by a certain date. That date is the ex-dividend date. The suffix ex- comes from the Latin meaning "without". So if you own a stock before it trades ex-dividend (without the dividend), you will receive the dividend for the stock. As long as you buy the stock, and that includes up to the day before the stock goes ex-dividend, you will be paying a higher price for the stock. You're paying to receive the dividend. The day the stock goes ex-dividend, the price of the stock will be adjusted down for the dividend. Here are some examples. If a stock is paying a dividend of $.25, and it closes at a price of $20.25 the day before it goes ex-dividend, it will open at a price of $20 the next day, the day the stock is ex-dividend, unless there is another news event to move the stock more or less. If a stock is paying a stock dividend of 5%, and it is trading at $20 the day before it goes ex-dividend, the stock will open the next day, the day it trades ex-dividend, at a price of $19. The math works like this: 5% of $20 is $1. Since you, as a shareholder bought the stock before it went ex-dividend, you will receive 5% of your total shares in stock, so you are made whole on this transaction. If you had 100 shares, you'd receive 5 shares on the pay date. Again, the math: you buy 100 shares before the ex-dividend date for $20. You then receive 5 shares. The value of the transaction: $2000 for the original purchase. Then you receive 5 shares. But the shares are worth $19 after the stock went ex-dividend. Your value of the stock is 105 X $19 = $1995 which is almost exactly the value before the split. If you take the same $2000 and buy the day the stock trades ex-dividend, you would pay $19 a share and buy 105 shares. Either way, you own the same number of shares. Both types of dividends, cash and stock, are placed in your brokerage account on the pay date. What happens if you buy the stock on the ex-dividend date or after that? You pay the lower price but you don't receive the dividend. In the example above, you would buy the stock that pays the $.25 dividend at $20 instead of $20.25. If you buy the stock paying the stock dividend, you'd pay $19 for the stock but you don't get the split shares. One thing should be very obvious: The value of the stock adjusts for the dividend whether it is paid in cash or stock so that buying the stock before or after the ex-dividend date doesn't make any difference. In other words, there's no value added from getting the dividends except the actual cash is helpful, especially if you're depending on the dividends as an income source. The one big drawback to that: you have to pay taxes on those dividends so you don't get to keep all of the payment. And those dividend payments are made from after-tax income of the company. That's why it's called double taxation. That income, first at the company level, then at the personal level, is taxed twice. So keep these facts in mind: if you want the dividend from a stock, then buy it before it trades ex-dividend. But if you buy it after the ex-dividend date, remember that you haven't missed out. You've bought the stock at a lower price. Jim K.