Jul

12

Does the market lift higher to support the ecosystem when dividend cash arrives on deposit to be reinvested into same shares?

For tax purposes, the UK has an ISA. This is a relatively small wrapper that allows you to put money away each year and buy securities with no income or cap gains.

Given it is a retail product, to take advantage, one has to hold shares in a nominee account at somewhere like Hargreaves Lansdown.

Because it is an aggregate nominee holding, if shares have an in-kind vs. cash dividend option, all accounts must accept the cash option.

So if one is reinvesting dividends, one must wait for the cash to arrive and have the broker's automatic dividend buying program take care of the share purchase.

1. The cash purchase typically has a 1% fee, so you lose 1% of your dividend, plus the bid/asked share. De rigueur.

2. Worse: the "in-kind" dividend option typically prices around the ex-date. My casual observation from my nominee held stocks is that: a. When the in-kind share ratio is determined, the security is conspicuously often down. b. When the cash arrives and there is forced buying, the price is conspicuously often much higher than on the dates when the in-kind ratio is determined.

If statistically valid, this would achieve:

1. Expropriation of the small accounts
2. Benefits to hedgies etc. who don't hold nominee + management who's own options / dividends will typically time inline with the exchange ratio days rather than the cash deposit days.

Has anyone seen data to confirm or deny this sort of thing?

Richard


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