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NISM Certifications · NISM-Series-XV: Research Analyst · Corporate Actions

On the ex-dividend date, what generally happens to the share price of a company, all else being equal?

The share price tends to fall by roughly the dividend amount on the ex-dividend date. Buyers from that date are not entitled to the declared dividend, so the value of the payout is removed from the price, all else being equal.

  1. AIt tends to fall by roughly the dividend amountCorrect
  2. BIt tends to rise by roughly the dividend amount
  3. CIt is unchanged because the dividend is paid later
  4. DIt doubles to reflect the entitlement

Explanation

On the ex-date, buyers no longer receive the declared dividend, so the value attached to the entitlement is removed from the price, which tends to fall by about the dividend per share. A rise would not be logical since new buyers lose the payout.

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