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Dividend Gap

Category — General Notions

Dividend Gap is a reduction in the price of a share on the trading day following the closing date of the register by an amount that does not exceed the declared value of the dividend per share.

What causes this decrease? After the announcement of information on the payment of dividends among investors, there is a desire to acquire these securities and get into the list of shareholders who are entitled to dividend payments. (Note: for this, it is necessary to purchase the security not on the closing date of the register, but on the ex-dividend date - the last date when the security is traded with the opportunity to receive the declared dividend on it). Thus, an increase in demand affects the price of a share and the price rises.

After the closing date of the register has passed, the investor loses interest in holding the paper in his portfolio (since the main interest is in receiving dividend income) and sells it. Such a decrease in demand leads to a sharp drop in price, this gap in price is called a dividend gap. Most often, the dividend gap does not exceed the value of the dividend payout per share.

After the stock has returned to its previous price before the fall, the dividend gap is closed. This process can take from several days to several months, or not happen at all (due to a number of other unrelated reasons).
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