Ex-dividend date | General financial discussion | Discussion forum

Yes, mutual funds do have ex-dividend dates for their distributions.

One would not want to purchase mutual funds just before they pay out a distribution. One ends up with a deferred capital loss in exchange for an immediately taxable return of a portion of one's original investment. See Watch for tax pitfalls with mutual funds

With individual stocks, the impact is not as easily seen as with mutual funds. The price of individual stocks is very noisy.

For example, during September, CIBC common shares traded as high as $105.37 and as low as $98.83. That $6.54 range swamps the impact of the stock trading without its $1.46 quarterly dividend at the open of September 25.

It is not even obvious looking at the days around the September 25 ex-dividend date:

I've noticed that over the decades too, with blue chippers with high volumes. There's a bit of a drop maybe the morning or day of ex dividend (though it's normal for these stocks to range by a dollar and usually more on any given trading day anyway) and then a day or so after ex dividend date (as in Norman1's example where the day after ex dividend date it got to higher than the day before ex dividend) you're back to normal, no apparent effect on stock price from dividend that's just been declared.

AltaRed said
Technically, the stock price drop should equal to the dividend but market dynamics cloud the effect depending on whether stock price is trending up or trending down that particular week.  

Stocks are volatile. I have a stock that is in my RRSP account and also non-registered account. Both are setup for dividend reinvestment. On the last dividend payment date I paid 8% more in the one account. I have another stock in my TFSA and non-registered account both setup for dividend reinvestment. I will have to wait until the next payment date to compare reinvestment prices. Investing in stocks I have to hold for a long period before I am willing to sell. Some stocks I receive the quarterly dividend. I use the income for my cashflow.

Norman1 said

topgun said

I have a friend that has CIBC. We were talking Sept 25th. He asked why it dropped so much that day. I checked for him. I told him part of the drop was ex-dividend date of $1.46 dividend. $101.45 - $1.46 = $99.99. It traded below that value all day.

Unfortunately, that explanation doesn't fit well.

September 25 is only the first day that the stock traded without the dividend. It's not like the next trading day, September 28, the stock trades again with that dividend.  

If you purchase the stock on ex-dividend date ,you have to hold the stock to the next record date (i.e. in December for CIBC) to collect the dividend in January. The current record date for CIBC is September 24. If you sell before the record date in December you will not receive the January dividend.

Bill said
Point is you could have bought CIBC on Sept 24 and sold it again on Sept 28 at pretty much the same price, broke even, and then collected the quarterly dividend in October. It's just an example and has nothing to do with the next dividend declaration in December.  

Very true. What happens if the stock goes down? I purchased TRP ex-dividend September 29 at BID September 28 - dividend price (i.e. $59.20
.81) = $58.39. Purchase price $58.34. It has continued down since. It can go either way. Up or down. One friend observed sometimes stocks are bid up to record date. He does not know why. His method is trading stocks. Holds them 1 - 1 1/2 months and flips them. He is successful making money.

Norman1 said

topgun said

… One friend observed sometimes stocks are bid up to record date. He does not know why. His method is trading stocks. Holds them 1 - 1 1/2 months and flips them. He is successful making money.

Some market participants have an interest in generating "income" even if it is at the expense of the "principal". For example, someone who has an understanding with his/her parents that he/she can spend any income generated by the portfolio but not spend any of the capital.

I would be skeptical of your friend's claims unless your friend also discloses long term returns. It is actually quite easy to "make money" in the stock market. The hard part is to not lose those profits and achieve, ten years later, a compounded average return of 6% to 7% per annum.

When I started, half of my stocks doubled in 5 years! The other half crashed and burned. I could have bragged about those stocks that doubled and just not mentioned the others or the pathetic 5 year compounded average return. Just like some commodity futures traders I read about.

Claim to be up something like $5 million in the last several years in futures trading! Just don't count the $10 million that was lost before and was "erased" by bankruptcy.  

I have experience with commodity futures. I told Dad I could only lose $5,000. From the time I was 28 to 33 I traded metal (i.e. silver, gold, platinum, copper futures) plus one long Canadian dollar @92 cent (i.e. it declined and I lost all my margin). The first year I made more than my day job. The following four years I lost 5X that amount. I found out about the Hunt brothers later. I did not file for bankruptcy. It took a good while to recover. Some people only mention their gains not their losses.

I have never asked him his average return. 6%-7% is realistic. He will not admit to losing money the way he does things. He claims when it is volatile he makes lots.

I purchased metal stocks. Alcan, Inco, and American Barrick now Barrick Gold. I held 9-10 years before AL and N went up. Barrick never went up. Bought @$40 declined to $11 or so. It finally increased this year. A long time with a small dividend.

Sometimes I like doing a practice trade with covered calls. My current practice order is BNS NOV $56 wrote for $1.18 premium. If called in Nov I keep $1.18 (more than the dividend). The last time I did this was almost 4 years ago. I wrote several calls with premium over $1. They were called in Dec on record date. No Jan dividend. I used the proceeds to buy back BNS. I had less shares than if I had HELD. Did not take long to buy back BNS shares with dividend. See what happens in next 6 weeks.

Mutual funds do not have a market price that can deviate from NAV like ETFs can. They only have a NAV that is calculated at the end of each trading day, and that NAV includes the closing price of all the underlying securities in that mutual fund plus accumulated investment income, including any realized cap gains. An investor always buys or sells a mutual fund at NAV on the day the buy/sell is 'contracted'.

A mutual fund's NAV will reduce by the exact amount of any distribution, so there is no advantage to owning (or not) a mutual fund before, or after distribution payout, except for tax reasons:

1) If you buy or sell a mutual fund before the distribution date, any embedded investment income that would be paid out as a distribution is included in the NAV and that sets the price for cap gains (or losses). Generally speaking, if I was going to sell a mutual fund, I would do it before distribution date because I much prefer my 'income' to be in the form of higher cap gains, or lower cap losses at the 50% inclusion rate.

2) If you sell after the distribution date, you will sell at a lower NAV than you would have the day before, and get distribution income that may entirely fully taxed Other Income, or some combination of Other Income, eligible dividends, cap gains and/or Return of Capital.

I don't know why distribution dates for mutual funds are not published in a similar way to stocks but they seem to be proprietary to the mutual fund companies themselves. One has to go to the mutual fund family website to find distribution dates. It is the same thing for tax slips. T3 tax slips for mutual funds are issued by the mutual fund companies themselves...not by the brokerage like they do for TSX or NYSE traded stocks and income trusts.

In the past when I owned mutual funds, I would always do sales in early December before any distribution that may be made that year (for cap gains purposes) and if I was buying, I would always buy AFTER the distribution date at a lower NAV. No way would I want to pay X for NAV before distribution date, then have Y investment income to put on my tax return for that year and then have an ACB for that mutual fund at X-Y.

Generally speaking, I'd never own a mutual fund any more with the advent of ETFs. There can be a few exceptions where actively managed mutual funds might outperform an index ETF, even after notorious MER fees. One such performer right now is MAW104 which as a 60/40 balanced mutual fund is outperforming 60/40 balanced ETFs like VBAL, XBAL and ZBAL.