Shares!!!

[Lonie_from_50]

For a Uni assignment in Accounting I have to buy $10,000 worth of shares, between 2 companies listed in a group of 10, that are listed on the stock exchange. The period is 17-March through to 14-April of recording share prices. The obvious target besides the work is to see how much profit you can get. Below is what I got as of 17-March 2006:

[B]17-March 2006		  $		  $
			Price	Shares	Total[/B]
SEV	Seven Network	9.54	481	4,506.97
WOW	Woolworths	19.20	286	5,491.20
					[B]9,998.17[/B]

Woolworths paid its dividends last week, and stupidly, I didn't look at the date of dividend pay when selecting. We were going great guns, as Woolworths and Seven Network both hit close or beat their 52-week High's, which seemed like we were on fire, but when Woolworths paid it's dividends, with the ex-div date start of last week, the price just fell heavily, and I was shattered.

On Monday, this week, Woolworths gained 37 cents back up to $19.20, so I was even, but once again, it fell, at $0.41 and then a steady $0.09 in the past 48 hours. Seven Network is also paying its dividends, as of yesterday, it paid the dividends, but the ex.div date fell on 29-March, and the price only dropped $0.03 over the next 2 days, and recently, it fell $0.19, but today was positive and increased by $0.03.

The question i am asking here, is what am I expecting over the next week and half for both these companies? Especially Woolworths! Will they start to go back in the right direction or sit at the high $18 price, or will they decline at a slow (or quick) rate? Same as Seven Network. Also, what is an understandable reason for prices falling when dividends are paid?

Thanks to everyone who contributes. Be good to find out more.

 

[rick James]

One of the reaons some companies prices drop after dividends are paid is because some investors are reluctant to invest directly following a dividend payment, depending on the frequency of dividend payments for that security.

Another reason, and I am speculating slightly here, but I assume liquidity in companies is lower following dividend payments.

 

[Squeak]

I should know the answer but I don't, because I never listen in lectures. Something to do with shareholders selling their stake once dividends are paid perhaps?

 

[btdg]

Theoretically, share price drops on the ex-dividend date by the amount of the dividend, because the value of the share is essentially the same, but they have given you a cash sum return.

ie: today - Share worth $10
tomorrow - Share worth $9, plus $1 in my pocket from the dividend.
$10 = $9 + $1
If this wasn't the case, if it dropped to $9.50, for example, I could buy today at $10, sell tomorrow at $9.50 and collect $1 dividend for a profit of $0.5 overnight. If that happened though, everyone would want to sell at 9.50, so the price would drop until it hit 9, etc.

Things like liquidity, market microstructure can affect the drop, making it not absolute, but its a pretty good rule of thumb. Only it screws you up if you are talking hypothetical situations like a school assignment, unless you add the dividend back into the share price (which in fairness, your teacher should let you do).

 

[Embers]

For a Uni assignment in Accounting I have to buy $10,000 worth of shares, between 2 companies listed in a group of 10, that are listed on the stock exchange. The period is 17-March through to 14-April of recording share prices. The obvious target besides the work is to see how much profit you can get. Below is what I got as of 17-March 2006:

[B]17-March 2006		  $		  $
			Price	Shares	Total[/B]
SEV	Seven Network	9.54	481	4,506.97
WOW	Woolworths	19.20	286	5,491.20
					[B]9,998.17[/B]

Woolworths paid its dividends last week, and stupidly, I didn't look at the date of dividend pay when selecting. We were going great guns, as Woolworths and Seven Network both hit close or beat their 52-week High's, which seemed like we were on fire, but when Woolworths paid it's dividends, with the ex-div date start of last week, the price just fell heavily, and I was shattered.

On Monday, this week, Woolworths gained 37 cents back up to $19.20, so I was even, but once again, it fell, at $0.41 and then a steady $0.09 in the past 48 hours. Seven Network is also paying its dividends, as of yesterday, it paid the dividends, but the ex.div date fell on 29-March, and the price only dropped $0.03 over the next 2 days, and recently, it fell $0.19, but today was positive and increased by $0.03.

The question i am asking here, is what am I expecting over the next week and half for both these companies? Especially Woolworths! Will they start to go back in the right direction or sit at the high $18 price, or will they decline at a slow (or quick) rate? Same as Seven Network. Also, what is an understandable reason for prices falling when dividends are paid?

Thanks to everyone who contributes. Be good to find out more.

Alot of people sell when dividends are handed out, its standard procedure really, theres a few people who just buy shares just to get the dividends. Right now the strength of the market is really based on the resources market whilst the rest of the market is relatively steady.

I purchased some Lihr Gold a while back and also atm I own some Iluka resources and both are doing very well for me (not happy I chose Iluka over Zinifex tho ).

With those companies I wudnt expect much if any gains at all, should of went into the resources market.