Does the market hate Dividends now?

protrade

Well-Known Member
#1
Time was when stocks ran up into the Dividend - with people buying the stock for the tax efficiency of dividend on one hand, and to generate a short term capital loss on their equity on the other hand.

Now, it looks like the reversal of tax policy on Dividends has shifted market behavior! Stocks are running up AFTER the ex-date, because investors no longer want the dividend!

A large dividend is actually a negative for a long term investor today - because they pay higher taxes on the dividend, relative to the long term capital gain!

I have seen this trend with Vedanta and L&T - where market actively waited for ex-date to push stocks higher!

Isn’t this strange, how dramatically market behavior changes, with small changes in rules?
 

TracerBullet

Well-Known Member
#2
I have no opinion but 2 examples don't really tell much. If you are inclined, then you might want to look at stock behaviour after dividend for all/top x companies before and after tax rule change and see if their really is a significant difference. Eyes and discretion are great to get such ideas but you need more work to confirm the theory.
 

protrade

Well-Known Member
#3
Obviously - two swallows don’t make a summer.

But think about it this way - as a long term investor, when a company pays a large dividend, and you pay 30% tax on that dividend, it’s quite painful.

If you sold the stock cum-dividend instead, you pay just 10% tax!

The government has actually created a disincentive for dividends.
 

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