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Speaker 1: Welcome to Ask Fear and Greed, where we answer questions

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Speaker 1: about business, investing, economics, politics, and more. I'm Michael Thompson,

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Speaker 1: and hello, Sean Aylmer. Hi, Michael, got a good one

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Speaker 1: for you today. They're all good, They're all good, but

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Speaker 1: today is a good one, especially for anyone who's interested

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Speaker 1: in investing. Invested in investing. I was about to say,

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Speaker 1: and then I realized that would be terrible, but I

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Speaker 1: said it anyway. This has come from a listener. It

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Speaker 1: has come from Mark who sent it in via LinkedIn,

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Speaker 1: and he said, plenty of stocks are going ex dividend

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Speaker 1: at the moment, which is something that we talk about

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Speaker 1: a fair bit on the show, isn't it? What exactly

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Speaker 1: does it mean? And I'm guessing this is probably the

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Speaker 1: heart of what he wants to know. Is it better

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Speaker 1: to buy before or after the date they trade ex dividend?

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Speaker 2: Hmmm? Good question y.

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Speaker 1: So it's two parts, it's a two parter.

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Speaker 2: Yes, So the ex dividend date is the cut off

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Speaker 2: date for investors to buy share with an entire molement

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Speaker 2: to a dividend, an upcoming dividend. Let's take a step

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Speaker 2: back at half year and your results companies outline their dividends.

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Speaker 2: It's basically the amount that a company pays two shareholders

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Speaker 2: the amount out of profit they pay to shareholders. That's

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Speaker 2: easy enough. Home Wealth Bank, let's use them for an example.

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Speaker 2: Their interim dividend. The interim dividend is the half year dividend.

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Speaker 2: The final dividend is the fully dividend. So the interim

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Speaker 2: dividend for common Wealth Bank two dollars twenty five. They

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Speaker 2: report it on the twelfth of February. They said, we're

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Speaker 2: going ex dividend on the nineteenth of February. So if

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Speaker 2: you bought Commonwealth Bank shares up until the eighteenth of February,

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Speaker 2: you would get that two dollars twenty five dividend. If

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Speaker 2: you bought it on the nineteenth, you would not get

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Speaker 2: the two dollars twenty five dividend. So okay, so that's

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Speaker 2: what So what you would imagine the nineteenth is Commonwealth

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Speaker 2: Bank shares should go down though training about one hundred

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Speaker 2: and sixty two dollars at the time, so when they

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Speaker 2: open that day you can expect them to go down

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Speaker 2: two dollars twenty five because that's the dividend payment per share.

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Speaker 2: And if you bought them the day before you're going

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Speaker 2: to get it. You buy them today you don't, So

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Speaker 2: the share price reflects that two dollars twenty five. Now

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Speaker 2: on that day Commonwealth Bank share price for me, the

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Speaker 2: trading day of the nineteenth actually went down more than

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Speaker 2: three dollars, but that was two dollars twenty five of

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Speaker 2: that was dividend. The other buck or so was just

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Speaker 2: the view of Commonwealth Bank on the day to day. Okay.

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Speaker 2: So in short, to answer the question of mark, it

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Speaker 2: shouldn't matter that much whether you buy before or after

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Speaker 2: xdiv date because the share price reflects that dividend. Some

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Speaker 2: of the Commonwealth Bank example, the two dollars twenty five

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Speaker 2: the interim dividend they were paying was built into the

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Speaker 2: hut and sixty two dollars share price, and like the

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Speaker 2: following day it was two dollars twenty five lower, and

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Speaker 2: it's actually more lower because the other stuff was going on.

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Speaker 2: But all things being equal, on next dividend day it

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Speaker 2: drops the amount of the dividend.

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Speaker 1: Okay. So does that mean then that you do have

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Speaker 1: people buying in just before with the sole purpose of

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Speaker 1: receiving that dividend, or does it generally not happen that way.

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Speaker 2: Theoretically, it shouldn't matter because if you sell out a

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Speaker 2: week later, you're going to be lost the money. Now,

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Speaker 2: having said that, and this, we're going above my pay

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Speaker 2: grade here. Financial planners. This is where they are fantastic.

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Speaker 2: Go and see a financial planner. Right, well said, But

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Speaker 2: a couple of caveats. Because we have a system of

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Speaker 2: dividend franking in Australia, Companies fully frank their evidence a

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Speaker 2: Commonwealth bank. When you earn money in Australia, you can

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Speaker 2: fully frank it. What that means is that the company

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Speaker 2: has already paid tax on the earnings, so when the

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Speaker 2: shareholder gets a dividend, they actually get a tax credit.

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Speaker 2: They're not double paying it. That can be used to

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Speaker 2: offset your own personal income tax. There may be times

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Speaker 2: when having those franking credits is advantageous to an individual.

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Speaker 1: Gotcha.

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Speaker 2: I'm not saying it is or isn't. I'm saying, see

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Speaker 2: a financial planner.

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Speaker 1: But it may be the case that there are You

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Speaker 1: may see some people buying those shares in order to access.

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Speaker 2: The frank credits. Okay, yeah, And the other thing just

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Speaker 2: remember is that companies. You think that Telstra in the

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Speaker 2: banks will always pay dividends. They don't. During COVID, some

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Speaker 2: of the banks didn't pay dividends for a half year period,

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Speaker 2: so you can't be sure that you're going to get

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Speaker 2: a dividends.

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Speaker 1: That's really interesting stuff. And I mean we talk about

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Speaker 1: ex dividends so often. Why are you laughing at because

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Speaker 1: a surprise.

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Speaker 2: You're like, that's actually interesting.

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Speaker 1: I knew it was going to be interesting, Like everything

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Speaker 1: you say is interesting, but there are some times when

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Speaker 1: you surprise me with just how interesting it was in

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Speaker 1: fact that I know what I'm talking about.

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Speaker 2: No, no, no, no is it sometimes no?

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Speaker 1: But suddenly, like the franking credits part, that all makes

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Speaker 1: sense because I had always kind of had this assumption

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Speaker 1: that there was a greater number of people buying in

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Speaker 1: advance of the ex dividend date in order to access

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Speaker 1: the dividend. And now suddenly I'll see there is a

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Speaker 1: reason why there might be people doing that. But it

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Speaker 1: would come down to very specific kind of circumstances and

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Speaker 1: tax requirements and all that kind of thing, which is

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Speaker 1: why you should see a financial plan. Absolutely a good one, Sean.

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Speaker 1: Thanks Michael, good one too.

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Speaker 2: Mark.

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Speaker 1: Thank you for asking a question. If you've got your

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Speaker 1: own question that you would like us to answer, then

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Speaker 1: you can send it on through jump Onto, LinkedIn or

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Speaker 1: Facebook or Instagram, or head to Fear and Greed dot

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Speaker 1: com dot au and send through your question. Will answer

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Speaker 1: it pretty soon. I'm Michael Thompson and this is ask

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Speaker 1: Fear and Greed