Dividend cutoffs: what is it and how does it affect quotes

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dividends dividend cut-off, div.cut-off, the dividend gap as the dividend cut-off effect on the stock price

July is the closing period of dividend registers of many Russian companies. This means that an investor who buys shares after a certain date will not be able to claim dividends for the previous year.

All companies have different "cut-off dates". After this date, the company's shares can be bought at a price below that which was before the cutoff. This is the so-called "dividend gap", that is, usually the price of the paper goes down sharply by the amount of dividends. It is important to understand that a dividend gap is a necessary part of trading. If it had not been, investors could have received dividends, and without problems out of the stock the next day after the cutoff, without carrying any risks and losses. Such inefficiency of the market just smoothed out the failures of quotations after the closure of the register, making dividends interesting only to those investors who hold the paper for a long time.

From the above, the question arises: "Why then buy dividend shares based on dividends, if the quotes of these shares after the cut-off fall sharply down?". Quotes of such shares do fall, but this does not mean that it is not worth buying such shares. By purchasing dividend shares, you guarantee a regular cash flow from holding shares (some companies pay dividends 4 times a year, in more detail – "Which Russian companies pay dividends more often than once a year").

Thus, even if the market falls and the quotes fall, you can expect a certain profit, keeping the same number of shares. If we consider the long-term perspective, rather than speculation in the short term, the advantage of dividend securities becomes more obvious. Also, a lot of paper very quickly close the dividend gap.

In one of the following articles we will talk in more detail about dividends and about Russian and American companies with the best dividends.

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