Question

Which one of the following statements is true?

a. XYZ declared a dividend of $.80 a share. The ex-dividend date is tomorrow. All else constant, you would expect the opening price tomorrow morning to be higher by an amount approximately equal to the after tax value of the dividend.

b. Winsome and Losesome declared a dividend to shareholders of record on Monday, February 10, which is payable on Wednesday, February 25. Julie knows that once her dividend check is mailed that it takes two business days for the check to arrive in her mailbox. Julie should expect to receive her dividend check on February 12.

c. If Tuesday, May 11, is the ex-dividend date on ADL, Inc., stock then Thursday, May 13 is the record date.

d. The ABC Co. declared a dividend to holders of record on Friday, October 12, which is payable on Friday, October 26. Gilbert purchased 100 shares of ABC Co. stock on Tuesday, October 9. Gilbert is entitled to 25% of the October 26 dividend on the 100 shares.

Answer 1

A is False. If one purchases a stock on its ex-dividend date or after that, he will not receive the next dividend. Hence stock price will be no higher.

B is False. The record date is the cut-off date to ascertain which shareholders will receive payment. Julie should expect the dividend by Feb 27.

C is True. The ex-dividend date is two business days before the record date. Hence May 12 is the record date.

D is False. The record date is the cut-off date to ascertain which shareholders will receive payment. Hence Gilbert will receive full dividend.