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At what price / date does a stock dividend reinvest at?
I own a stock (ADR) whose ex-dividend date is Monday, April 24. But the “pay-date” is some time in July. Is it correct to assume the reinvestment will be made at Monday’s closing price? If so, that should allow factoring the anticipated payout into the share total for record keeping purposes earlier.
That's an excellent question, actually two of them. On what day is a non-OEF dividend reinvested and at what time (price) is it reinvested? These questions apply equally to any security continuously priced.
Despite what you would wish, you don't have use of the dividend cash on the ex-date. You have access to that money on the pay date. That's what "pay" means. So whether your brokerage reinvests the dividend for you or you reinvest it manually yourself, that can't happen before you have access to the cash.
As to what price you get on the day you or your brokerage reinvests the dividend, here's what Robinhood has to say (emphasis in original):
When will my dividend be reinvested?
Because of regulatory rules, there’s typically a waiting period of at least 10 days between when a company announces a dividend (the declaration date”) and when this dividend is actually paid out to shareholders (the “pay date”). Dividends will then be reinvested during market hours (9:30 AM to 4 PM ET) on the trading day after the dividend pay date. Because it typically takes some time to process the reinvestment orders, your dividend may not be reinvested right at market open, but you’ll receive a notification letting you know when it is.
From Vanguard, a description of the mechanics (emphasis added):
How does the reinvestment program work?
When reinvesting dividends, Vanguard Brokerage Services combines the cash distributions from the accounts of all clients who have requested reinvestment in the same security, and then uses that combined total to purchase additional shares of the security in the open market. Vanguard Brokerage will attempt to purchase the reinvestment shares on the payable date. The new shares are divided proportionately among the clients' accounts, in whole and fractional shares rounded to three decimal places. If the total purchase can't be completed in one trade, clients will receive shares purchased at the weighted average price paid by Vanguard Brokerage Services.
There's a followup question, implicit in your original: when sources like M* calculate total return (including dividends) of stocks, CEFs, etc., what price do they use as the dividend reinvestment price? I've not seen any writing on this.
Only for mutual funds, the reinvestments happen on the ex-div date.
It's different for stocks, ETFs, CEFs.
First, the Pay Date may be 2-4 weeks away (why is unclear to me). Second, most brokers aggregate all the reinvestment orders/requests, and a week or so after the Pay Date, execute a giant market-order. That is the date of reinvestments.
CEFs can have another twist. Brokers may have a special arrangements with the CEFs to reinvest sooner and at small discounts.
M*, Yahoo Finance, StockCharts, etc just does their reinvestments on the ex-div date and that leads to some tracking errors in their performance data and charts.
“…. on the trading day after the dividend pay date.” Appears to disprove my earlier assumption . Well, I’ll use Plan B than and just carry the calculated pay-out as a ”cash” position inside the equity portion of portfolio. It’s significant - and the drawn out process would distort the overall allocation if not factored in.
I’m a bit curious why the lengthy delay between ex-dividend and pay date in this case. Might it be regulatory due to it being an ADR (Europe)? Or is it simply to allow company to have access to the sum for whatever purpose they want to use it for much longer? I own a couple monthly dividend paying CEFs - and that 10-day (interval) figure from Robinhood sounds pretty accurate from what I’ve seen.
One of my issues with M*'s portfolio tracker was that it seemed to always calculate reinvestment of dividends using the price figure on the opening of the ex-date. That may or may not be the way companies did it who (used to) held your stock internally. Anyway that was always different from what my brokerage company records showed me actually ending up with.
Comments
Despite what you would wish, you don't have use of the dividend cash on the ex-date. You have access to that money on the pay date. That's what "pay" means.
As to what price you get on the day you or your brokerage reinvests the dividend, here's what Robinhood has to say (emphasis in original): https://robinhood.com/us/en/support/articles/dividend-reinvestment/#Whenwillmydividendbereinvested
From Vanguard, a description of the mechanics (emphasis added): https://investor.vanguard.com/client-benefits/dividend-reinvestment
There's a followup question, implicit in your original: when sources like M* calculate total return (including dividends) of stocks, CEFs, etc., what price do they use as the dividend reinvestment price? I've not seen any writing on this.
It's different for stocks, ETFs, CEFs.
First, the Pay Date may be 2-4 weeks away (why is unclear to me). Second, most brokers aggregate all the reinvestment orders/requests, and a week or so after the Pay Date, execute a giant market-order. That is the date of reinvestments.
CEFs can have another twist. Brokers may have a special arrangements with the CEFs to reinvest sooner and at small discounts.
M*, Yahoo Finance, StockCharts, etc just does their reinvestments on the ex-div date and that leads to some tracking errors in their performance data and charts.
I’m a bit curious why the lengthy delay between ex-dividend and pay date in this case. Might it be regulatory due to it being an ADR (Europe)? Or is it simply to allow company to have access to the sum for whatever purpose they want to use it for much longer? I own a couple monthly dividend paying CEFs - and that 10-day (interval) figure from Robinhood sounds pretty accurate from what I’ve seen.
Thank you @msf