I had a sound conversation about this with a close friend of mine. He bought 200 share of the implant after the announcement of 1200% dividend on 30 March. He thought that he’ll sell the shares after receiving dividends.
On 6th April he was shocked after seeing his share slashed by 24. A loss of 4800 (24×200) in only one day.
He immediately called me on 6 April noon (below is the conversation)
He – hey Sowmay, have you saw the fluctuation in hind zinc?
Me – no, what happened?
He – I’ve 200 share and it dropped by 24 today.
Me – Let me look over it.
He – I’ll meet you at evening.
call end
At evening…..
Me – don’t get worried about price drop
He – Why?
Me – you didn’t losed even a single penny.
He – please elaborate
Me – company’s price is dropped due to dividend distribution
He – hey are you gone mad? distributing dividends are good sign and even the share distributed the highest dividend ever by a private company. Yeild is 1200%.
he showed me the news
Me – let me explain you, when a company distributes dividend, then on ex-dividend date its share price is quoted at discounted price, in your case share dropped to 162 from around 186.(previous price – dividend held for distribution)
He – hell! So it means that I didn’t even benefited a single penny (as its dividend which receive is deducted from the price)
Me – yeah, ultimately you got nothing more.
He – Hey but I didn’t get any msg notification on dividend deposit in my bank account.
Me – price is discounted on ex- dividend date and dividends are distributed after 1-2 days. Check your account tomorrow or day after.
(I showed him the ex-dividend date)
He – thanks Sowmay.
Then I asked him for a treat on the occasion of dividend income.
conversation end
Lesson – always keep a keen observation on corporate actions. There are many occasion when share price disturbed like split off shares etc.
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