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Corporate Actions: Dividends, Buybacks, and Splits

Corporate actions change the price or the share count for reasons unrelated to the market's view of the company. Handled carelessly they look like price moves, and they will break any model that treats them as such.

Dividends

A cash distribution to shareholders.

Dividend yield=annual dividendshare price\text{Dividend yield} = \frac{\text{annual dividend}}{\text{share price}}

The dates matter and are routinely confused:

  • Declaration date: the dividend is announced.
  • Ex-dividend date: buy on or after this and you do not receive it.
  • Record date: holders on the books receive it.
  • Payment date: the cash arrives.

On the ex-dividend date the share price drops by roughly the dividend amount, mechanically. The company just committed to paying out cash, so it is worth that much less per share. A stock closing at 100.00 and opening at 99.00 on a $1 ex-date has not fallen: it is unchanged in total value.

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