Quote:
Originally Posted by lewdog
The stock price drops by the amount the dividend is paid out on the execution day.
That's why it makes no sense to buy a dividend stock to hold through payment and then dump it.
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You're partially correct, just a minor correction of the word "drop".
A stock has what is called "Ex-dividend date", normally one BUSINESS day prior to the RECORD date of the dividend being paid.
The stock is ADJUSTED downward for the price of the dividend on EX day, so if you buy it on EX day up to RECORD day, you get NO dividend.
If you buy either Municipal Bonds or Corporate Bonds, it works very different.
They calculate the amount of ACCRUED interest since the last payment (bond payments are paid twice a year, biannual) and then the purchaser of the bond pays the seller the amount of accrued interest up to the record date and then when they get the FULL biannual payment on the next record date, they will have received the correct amount for the time they owned the bond.
As an example, if you had a bond that was a Jan-July payment cycle known as a "1&7" that you bought on Feb 1st, you would owe the seller the interest from Jan 1st until Jan 31st and it would be added to the price of the bond upon purchase.