With the most likely increase in dividend tax rate in 2013, some cash-rich companies, esp. the smaller ones with a lot of insider ownership, may give a large ex-dividend (like $10 for a $15 stock) before the end of the year. The stock price should be adjusted accordingly in theory.
If you have a buy order for this kind of stocks, you may pay more than the market prices. To illustrate, you have a buy order for the mentioned company at $14 ($1 off the current price). After the dividend of $10, in theory the price of the stock falls to $5 and your order is executed at $14. You have an instant loss of $9 and since you have not met the requirement of owning the stock at a specific date, you may not get the $10 dividend.
I do not say it will happen for most of your buy orders as I do not know how the SEC handles this specific scenario. Just be careful.
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If the price went ex-div straight from $15 to $5, there will not be an execution at $14. At least there shouldn't be unless the market maker decides to take out extra bucks from the idiot who left the purchase order standing. However, having a standing buy order extending post-div is just crazy.
ReplyDeleteIt seems it will not occur as Tack said and I would expect the SEC would do sth:
ReplyDeleteThat won't/can't occur because the moment the stock goes ex-dividend both the share price and your limit order will be adjusted by the amount of the dividend.
Thanks Syarzhuk to confirm.