Ex-Dividend

Plz. clarify
When dividend is declared by a company why the money is taken from the market price of the stock of the company?

Akash,
Suppose you have a pregnant cow who is expecting a calf very soon. So when you are going to sell the cow, the buyer is expecting both the cow as well as the calf and hence the price will be more than that of a cow only.

So is the case with stocks as well. If a company has declared dividend and the record date is falling due very soon, then the buyers are paying for both expected dividend and the price of the stock. This price is called cum-dividend price. Thus, the stock price is inflated with the amount of dividend due. Therefore, when dividend is paid it's but natural that the price of stock will be adjusted as now the buyers will be paying only for the price of stock.

This is the theory. However, in today's world when prices of stocks are soaring high as compared to their face value, dividends don't make much of a difference and hence now a days adjustment on account of dividend is not called for except in case of some penny stocks.

Regards,
--Ashish

Great analogy ...

These are purely market supply and demand forces at work, as explained.

You also come across stray instances where the ex div price is marginally higher than the cum dividend price, or overtakes the latter in a few days . These occur when the scrip is on a strong uptrend and has strong bullish momentum.

AGILENT
PS Ashish ... have PMd you .. have a look
Also ... have corrected some typos in yr last para ... hope u don't mind

I have replied the PM.
Thanks for the corrections. I promise to be careful with them. Never mind anything of my seniors which is good for me.

Best Regards,
--Ashish

Thanks for the explanation.