From time to time, one runs across a statement such as the following:
And don't be fooled into thinking that relying on the dividend rather than selling [shares] leaves you with the original investment intact. It doesn't. When stocks pay out their dividends, the share price adjusts downward to compensate for the payout.
Source: David Van Knapp
This quote was taken from a recent MarketWatch article, written by a Wall Street Journal writer who should know better. Share prices do not adjust downward to reflect the dividend being paid out. To believe that is to make the fundamental error of confusing book value with stock price.
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Hey, 4Life, you should de-link (or comment on) this article as the author is dead wrong. Share prices *do* adjust on the ex-div date. The author clearly doesn't understand as he talks about the declaration date and the payment date.
Anon: You are correct. There is a lot of confusion on this. Investopedia also got it wrong with:
"For cash dividends, the value of the dividend is deducted from the last closing sale price of the stock. For example, let's assume that the closing price for one share of XYZ Corp. is $20 on Thursday. After close on Thursday, XYZ Corp. announces a dividend distribution of $1.50 per share. The adjusted closing price for the stock would then be $18.50 ($20-$1.50)."
http://www.investopedia.com/ask/answers/06/adjustedclosingprice.asp
The adjustment is made on the last day before the stock trades x-dividend.
Best Wishes,
D4L