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And the value of Fidelity's Apple stock would go down by $2.6 billion. The $100 billion in cash is currently factored into the share price. Dispurse the cash
by gwright 15y ago
And the value of Fidelity's Apple stock would go down by $2.6 billion. The $100 billion in cash is currently factored into the share price. Dispurse the cash and the market will discount the share price to match.
Personally I'm hoping for something more interesting than a special dividend. It does seem strange to have the announcement before the trading day begins though. I would think any big announcement would come after the close of trading.
Edit: Clarified that it is Fidelity's Apple stock that would be revalued.
- joshu 15y agoApple's market cap would go down by the amount of the dividend but it doesn't follow that Fidelity's stock price would drop, as their market cap does not reflect the value of their holdings.
- gwright 15y agoYes. I was a bit ambiguous. I meant that the value of Apple stock that Fidelity owned would go down, not that Fidelity's own stock would drop in price.
- joshu 15y agoI'm not sure what your point is? The Fidelity fund would go up in value by the dividend. They could just buy more AAPL...
- gwright 15y agoThat is exactly my point. The people saying that a dividend is important seem to think that it is 'found money'. My point is that it is really just converting one asset into another (stock to cash). Another way to convert stock to cash is to sell it. I realize that there are tax considerations though that make this all a bit more complicated.
- cynicalkane 15y agoFactoring cash into share prices is fine if you're in Econ 101 or you're Warren Buffet, but in practice stocks usually go up when they announce an increase in expectations in dividend payouts. At some point the market does not trust firms to manage their extra cash to line shareholders' pockets rather than their own, and beyond that point the market wants to see dividends paid out.
- gwright 15y agoMy understanding is that the stock price is actually adjusted downward by the per/share dividend on the ex-dividend date. For regular small dividends this change is not really noticible in the noise of regular trading but for large/special dividends it is. For example, look at the historical stock prices for Microsoft in 2004 when they issued a $3.08/share dividend: http://finance.yahoo.com/q/hp?s=MSFT&a=10&b=1&c=2004&d=10&e=29&f=2004&g=d http://finance.yahoo.com/q/hp?s=MSFT&a=10&b=1&c=... You can see that the difference between the close on Nov 12 and the open on Nov 15 is $2.63 where the difference in the surrounding days in about 20 times less.
- cynicalkane 15y agoThis is correct, but the thread is about changes in dividend policy, not ex-dividend dates.
- trimbo 15y agoAnd the value of Fidelity's Apple stock would go down by $2.6 billion. That's not what happened with Microsoft did a one-time dividend of $30bn. On July 19th, 2004, their stock price was 27.94. They announced it on July 20, 2004. The stock closed on 28.86 on July 21. The stock ran up to almost $30, and the day of the dividend dropped to 27.39. On July 19th, their value was $301.7bn On November 15th, it was $297.8bn. (Numbers computed by Wolfram Alpha.. kaching!) Believe it or not, there is value in ongoing dividends that makes "Fidelity's Apple stock would go down by $2.6" incorrect. Income funds, for example, would not buy Apple right now because it's not a "yield" stock. If they pay a dividend, those funds can then buy it under their prospectus. This opens up the overall pool of buyers for the stock and can stabilize and even raise the value over time. (edit: formatting)
- gwright 15y agoWhen I look at this graph: http://www.wolframalpha.com/input/?i=microsoft+market+cap+november+2004+daily http://www.wolframalpha.com/input/?i=microsoft+market+cap+no... I see that the market cap for Microsoft dropped by about $30bn on the ex-dividend day.