Why Will Dividend Make Microsoft Stock Price Fall By Dividend Amount?
Stock prices are based on predictions of future income, rather than just current market value of assets. That is, most companies are “worth” whatever their stock sells for, not because you could shut them down, sell off their assets, pay their debts, and split up the rest among shareholders, but because you can expect to get some money in the future (dividends or capital gains) if you own the stock now. As the money you are expecting to get in the future becomes the money you are actually receiving today, its value (as reflected in the stock price) changes. That is, if you knew that Microsoft was going to pay a $3 dividend tomorrow, you might be willing to pay almost $3 more for the stock today. On the other hand, if the dividend was going to be paid next week, you might only be willing to pay $2.50 more, because you’d be less certain that you would get all that $2.50 (plus a week’s worth of interest) back. I don’t follow stocks particularly carefully, but I note that MSFT has gone up
Let’s tease a couple of things apart here. Stocks have a price. Purely and simply, it’s the last sale or quote. Some people also think stocks have an “intrinsic value” which may be higher or lower than that last quote. (I’m one of those people. Look up “efficient market hypothesis” and “technical analysis” for other schools of thought). Intrinsic value is hard to assess, so there are several ways to arrive at it, depending on how much uncertaintly you can tolerate. See, I know for sure how much cash MS has. I have a pretty fair idea what their property and fixed assets would be worth if sold. And I know what their liabilities if wound up are. The result, the so-called “book value”, is a very conservative number. A company like MSFT usually trades well above book value. Nonetheless, if book value decreases, as it must when a dividend is paid, you will see a corresponding price drop, however temporary. You can also, as spacewrench says, place a value on the money you expect to receive in
