Cute 'n Fuzzy Bunny said:
Grumpy - I am not debating that point and it is not what I said. Going back to word #1, what I said is that a holder of the stock does not wake up the day after a dividend payout and see that their individual stock is now trading on the open market at a discount representing that payout.
I've owned dividend paying stocks for a long time. Never ever once seen an x% drop the day after an x% payout where the drop was attributable to the dividend payout. Any real or perceived difference in the 'valuation' of the company and hence its stock price is lost in the trading 'noise.'
As far as the mutual fund thing...again, i was speaking of what is observed by the investor. Every dividend paying mutual fund I've owned dropped its NAV when the dividend was paid and then rose to the same or nearly the same the day after with the exception of the wellesley fund..I'm presuming the average owner of that is as likely to take the income rather than reinvest it. The dividend gets paid out, then the proceeds are reinvested into the fund. There are more shares but the asset value of the fund has gone up by the value of the reinvested dividends. This is pretty simple math.
Hey CFB,
Perhaps I'm just missing something, but are you sure you're looking at the correct day to determine the effect of the dividend? As 3 yrs to Go pointed out earlier, the stock starts trading without the dividend payout days or weeks before the dividend is actually paid out. See also,
The Fool FAQ: Dividends, particularly the part about Declaration Date, Record Date, and Ex-dividend Date.
Re: the mutual fund dividends. If I understand what you're saying [I hope], you're observing that the NAV of the mutual funds is rising as a result of the investors reinvesting their dividends. Again, are you looking at the correct day? Make sure you're looking for what Vanguard calls the Record Date. This is the date on which you have to own shares of the fund to get the dividend [apologies if you already knew this
]. Anyhoo, I spot checked Vanguard's S&P 500 fund [VFINX] to make sure that any reinvested dividends didn't have much of any affect on the NAV.
I took VFINX's last dividend, whose record date was 12/27/05, reinvest date was 12/28/05 [also ex-dividend date] and distribution date was 12/29/05. Adjusting for the dividend distribution, the daily returns for 12/27/05-1/5/06 were almost exactly the same as the S&P 500 index [^GSPC on yahoo finance]. ** Note that the markets were closed on 12/31/05, 1/1/05 and 1/2/05, so there are only 7 days.
0.15%
-0.29%
-0.48%
1.65%
0.39%
0.01%
for VFINX and
0.13%
-0.30%
-0.49%
1.64%
0.37%
0.00%
for ^GSPC.
Now, perhaps VFINX is sooo freakin' big that the reinvested dividends didn't have much of an effect.
- Alec