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How does Stock and Cash Dividend both decreases the Market price per Share?
Please give me a clear idea.
1 Answer
- mracquireLv 58 years agoFavourite answer
A distribution of any kind -- a dividend or a short or long term gain -- reduces the price per share by the amount of the distribution. Importantly, you do not gain or lose any money due to a distribution.
Let's look at an example. You own 100 shares of ABC trading at $10.00/share so it's worth $1000.00.
ABC declares a dividend of $0.10/share at the close of some business day. Thus at the opening the next business day, ABC starts trading at $9.90/share ($10.00 less the $0.10 dividend).
So your shares are now worth 100 x $9.90 or $990.00 but you've received 100 x $0.10 or $10.00 in a cash dividend for a total of $1000.00. Thus, it's a wash.