Author Topic: Index fund pricing on Ex-Dividend date  (Read 4832 times)

Heckler

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Index fund pricing on Ex-Dividend date
« on: March 11, 2016, 09:11:36 PM »
I just noticed that my VCN (Vanguard Canada AllCap index ETF) announced an ex-Dividend date of Monday, March 14, with unit holders on March 17 getting a dividend.

This is a few days sooner than I was expecting, thus just rushed the planned $5k into my account, in hopes to buy before the ex-dividend date.  This will mean buying on Monday if the funds show up in my account on time.  The question may be moot if the funds don't show up till Tuesday.

Now I'm wondering - am I better off buying shortly after the dividend date instead?  Will the price drop on March 15 or 18 because the dividend date is passed?

I know long term this won't matter at all, but I'm more curious about how these thing work. Thanks!

Heckler

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Re: Index fund pricing on Ex-Dividend date
« Reply #1 on: March 11, 2016, 09:49:55 PM »
Funds just arrived, so I need to decide if I should buy first thing Monday or wait a day or two.  Cheers!

Heckler

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Re: Index fund pricing on Ex-Dividend date
« Reply #2 on: March 11, 2016, 10:07:21 PM »
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If you purchase a stock on its ex-dividend date or after, you will not receive the next dividend payment. Instead, the seller gets the dividend. If you purchase before the ex-dividend date, you get the dividend.

Well, wikipedia says the stock market rules have already made the decision for me.  Thanks anyway.

Trevor Reznik

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Re: Index fund pricing on Ex-Dividend date
« Reply #3 on: March 11, 2016, 11:01:12 PM »
Ex-Div means you're buying with no div, so if you buy on the ex-div date you don't get the dividend, you need to buy the day before.  Hope this helps.

nobodyspecial

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Re: Index fund pricing on Ex-Dividend date
« Reply #4 on: March 11, 2016, 11:43:14 PM »
And efficent market means that the price will drop by exactly the dividend/share so it doesn't matter

jim555

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Re: Index fund pricing on Ex-Dividend date
« Reply #5 on: March 12, 2016, 03:26:21 AM »
In my experience you are better off buying the dividend.  Even though this doesn't make sense since you are buying a taxable event.  I have seen stocks go ex-div and immediately run up to pre div pricing many times.  Plus side is your cost basis will be slightly higher.

nobodyspecial

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Re: Index fund pricing on Ex-Dividend date
« Reply #6 on: March 12, 2016, 12:04:22 PM »
May also depend on how dividends vs capital gains are taxed in your corner of the world

Doubleh

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Re: Index fund pricing on Ex-Dividend date
« Reply #7 on: March 12, 2016, 03:26:39 PM »
Theoretically the value of the fund falls on the ex date by exactly the value of the dividend declared - to do anything else would be to conjure value out of nothing.

Of course the price may return to the previous level the same day or the next, but this is just due to general price movements - if the div hadnt been declared, presumably the price would have gone up by an equivalent amount in any case.

Bottom line - there's no particular reason to want to buy the dividend. If your jurisdiction eg usa levies tax on dividends it could be detrimental to do so.

Consider I offer to either sell you my widget for $95, or for $100. If you chose to pay $100 I'll give  you back $5, but you have to pay $1 of that to the government. Which do you prefer?

Heckler

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Re: Index fund pricing on Ex-Dividend date
« Reply #8 on: March 12, 2016, 08:52:48 PM »
Thanks all.  We will see what the price does Monday, and I'm buying ex-div anyway because I was one day late getting the funds in.  No big deal, Im just curious to see how it all works.

Heckler

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Re: Index fund pricing on Ex-Dividend date
« Reply #9 on: March 15, 2016, 08:45:38 AM »
Turns out I was wrong on the date - with today being VCNs ex-div date, I was able to buy the dividend yesterday as I'd wanted to.  In my tax free account, so I'm keeping all of it!

This morning, the price dropped sharply $0.45 though.   The dividend end is only $0.179.   I need to stop trying to understand these things that make no sense!

« Last Edit: March 15, 2016, 08:48:16 AM by Heckler »

nobodyspecial

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Re: Index fund pricing on Ex-Dividend date
« Reply #10 on: March 15, 2016, 09:17:14 AM »
Valeant announced a big drop in value. The Canadian stock market is so small that a big change in one of the handful of shares that dominate the market cap can have a big effect.

Retire-Canada

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Re: Index fund pricing on Ex-Dividend date
« Reply #11 on: March 24, 2016, 07:21:55 AM »
I still haven't see my 2nd Q VCN dividend in my QT accounts. Seems like they should have shown up by now.

Heckler

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Re: Index fund pricing on Ex-Dividend date
« Reply #12 on: March 24, 2016, 07:55:58 PM »
nor I, but usually it's at the middle of the next month.  (Oct 16, 2015, Jan 13, 2016 were my last two from Q3,4)


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Unitholders of record on March 17, 2016 will receive cash distributions payable on March 24, 2016
- that means Vanguard is sending the cheque to the brokerage today.  Canada post will push it around a bit, then the brokerage will take their time opening the mail....  ;)
« Last Edit: March 25, 2016, 12:02:26 AM by Heckler »

forummm

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Re: Index fund pricing on Ex-Dividend date
« Reply #13 on: March 25, 2016, 09:17:24 AM »
For Vanguard funds, it doesn't really matter whether you buy before or after the dividend date. It's slightly less good to buy right before if you have to pay taxes on dividends. But the price of the fund will decline by the amount of the dividend the next day (with further adjustment for how the stocks in the fund did in the market that day). So it really doesn't matter other than the tax issue.

Example: Share price is $100 on day before ex-div day, and dividend is $1, and you own 1 share. Let's say the market is totally flat the next day. So the share price will be $99 at the end of the day and you'll have 1.01 shares (approx.) giving you $100 in the account. And you may owe some tax on that $1 dividend.

marty998

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Re: Index fund pricing on Ex-Dividend date
« Reply #14 on: March 25, 2016, 05:15:21 PM »
Wonder if anyone can elaborate on my thought process...

Say your Vanguard fund distributes quarterly...the investments that the index fund holds throw off dividends throughout the quarter, so the fund continues to track the index + is holding the cash from the dividends and distributions from stocks it holds. This means the NAV performance of the fund is higher than the index through the quarter?

By quarter end the fund is holding a not insignificant amount of cash d... It goes ex dividend, (which puts the price back to the index?), but there's still a gap between ex date and payment date.

Does all of this feed into tracking errors?