MLM Passive Income

What is the importance of dividends if the price drops the dividend amount?

I am trying to figure things out about dividends. It appears that if a stock has a $1 quarterly dividend, the stock will drop $1 in price when the ex dividend date comes along. If this is how it works, then what good are dividends? So is cashing out the only benefit? Wow! All of these answers suck. If the price drops the ex dividend date amount (it always does), then what is the advantage or incentive to buy AGNC over APPL for example.

Public Comments

1. Think of it as "cashing out" without having to part with your shares. The value of your shares will most likely rise over time and you got the money from the dividends!
2. Suppose I buy XYZ stock for $40 before the dividend date. A block is 100 shares, so that is $4000, plus my $7 Scottrade commission, or a cost of $4,007. Now I am entitled to the $100 ($1 times 100 shares) quarterly dividend. Now suppose you did the same. The next trading day, as in your example, the stock has a market value of $39, making our respective blocks worth $3900, compared to the $4,007 cost, a supposed loss of $107. To realize that loss, however, costs an additional $7, the commission for selling the shares. Why would you sell? The traders are saying that the stock, for no other reason than that the $1 dividend is past, are not interested in paying more than $39 for the stock if anyone is selling. Are you selling? Suppose then, that I sell that next day. I get a $3,900 gross sale, minus $7 commission, so there is $3893 more cash in my account. This venture began with $4,007 and results in $3,893, or a $114 loss. Later comes the dividend check, $100. While the exercise appears to be a wash, with Scottrade earning $14 for some miniscule amount of computer time to make the trades, there is more. When I pay taxes on my income that year, I have a $114 taxible income deduction because this is a short-term trade. The balance of my money is taxed at my normal marginal tax rate. My $100 dividend check, however, is taxed at a much lower rate (unless Obama's Congress changes the rules). But then not all dividend stocks drop the next day. The market may have other reasons to keep the value high, perhaps the dividend was sustained in a bad economy, which would indicate that the management might have felt that the cost of sharing earnings with stockholders was not adverse to their business prospects (hint: better things may be ahead). What if there was other good news that showed that, irrespective of the dividend, the company had some excellent prospects for future profitability? If I could have a slight marginal edge in the tax effects for a normal drop, what happens if the stock doesn't drop? I don't KNOW what will happen on the ex-dividend date subsequent trading. Buy for a day trading is intrinsicly stupid, at face value, but why people do it involves a wide range of situations we do not see. If I am careful, I might make a positive impact on my account balance by buying on dividend day and selling the next, but then I might find it most valuable on tax day, when my regular largess is diminished for tax sake, a tax paid at a 30-something percent tax rate, for instance, but the income loss of that deduction in taxible income is compensated by dividends, which are taxed at a much smaller percentage. If I'm careful, though, some of those companies won't fall in price afterwards, then the extra earnings, even at the higher marginal tax rate, are extra. Added: A 'thumbs down'? Probably from someone who hasn't done it. Hehehe
3. When a share price falls by the amount of a declared dividend , it often but not always, follows a strong rise in the price of the stock, which is the markets way of saying you can take the profit from the price rise but you leave the dividend for the next shareholder. This often prevents a rush of selling in the stock. For this reason it is wise to be aware of result announcements and ex-dividend dates if you are of a mind to sell.
4. You are looking at the "wrong" dividend". It is the next one that is important and the next and the next. Also look at Earnings as well as dividends.
5. People invest in dividend paying stocks for income. Dividends are a sign of strength and stability of a company and all things being equal, less risk.