Updated: March 9, 2018 at 8:55 am
The information for “Dividends on stock market indices” is for guidance only and neither Finsa Markets nor its owner Finsa Europe accept responsibility or liability for the accuracy of the data provided.
Dividends on Stock Market Indices
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Within stock indices there are individual stocks which will at times during the financial year declare a dividend to their shareholders. A dividend payment will theoretically affect the price of a stock, because it is a distribution of capital by the company. If it didn’t result in a price adjustment of the quoted company, the market would have a risk-free opportunity in that an investor could buy shares in the company before the ex-dividend date, then collect the dividend and then sell the shares bought earlier at the same price as they were purchased for, thereby realising a risk-free return.
This page alerts our clients to the fact that some stock indices on “ex-dividend” days will make a price adjustment on the close of the market on that day.
The Dow Jones Index (called Wall Street 30 on Finsa Markets) goes ex-dividend at 9pm. Anyone holding a long position at 9pm will be entitled to the dividend declared. Say for example the dividend is set at 5 points, and a client holds a position of £10 a point, the client will be credited with (5 points times £10) £50 on their trading account.
Conversely a client who is holding a short position at 9pm will be debited the dividend from their trading account using the same calculation as above.
In theory the market should not offer an opportunity to financially capitalise on the “ex-dividend” date, meaning that the person being long the Dow Jones should see the market drop by the amount of points the market has gone “ex-dividend” by, thus rendering the dividend profit matched by the equivalent drop in the price of the index. Conversely the short position should be compensated for the dividend expense by an equal point drop in the stock index, the moment the market goes “ex-dividend”. Finsa Markets emphasise this is a theoretical discussion, and there are no guarantees the market will do as theoretically planned or expected. Furthermore you should be alert to the fact that once the market closes at 9pm, the spread of the Wall Street 30 index will increase to its “after-hours” price. You can view our spreads on this page here.