From http://www.dividendtrader.com.au/index.html"What usually...

From http://www.dividendtrader.com.au/index.html

"What usually happens to a stock's price around dividend time?

In theory, the value of a company should continue to rise as it makes more profit and then fall as it pays out the profits to the owners of the company in the form of dividends. The value should then proceed to rise again as the company makes more profits. There are many other factors that affect market value of a stock, so theory should always be kept in perspective.

This period can be broken up in to 3 stages:

Stage 1: the lead up to ex dividend date - During this time a stock's price will normally rise assuming market sentiment is not declining. This is often a very good time to get trading gains. Care needs to be taken to select companies that are still performing, as profit downgrades or other factors can still drive a stocks price down during this period. General market sentiment is also a large factor. You have probably heard the expression " A rising tide lifts all boats" but the opposite is also true in that "A falling tide will lower all boats"

Stage 2: the ex dividend date - this is the date that a company is quoted ex dividend (a buyer on or after this date will not receive the current dividend). On this date (all else being equal) a stock's price would normally fall by an amount equal to the dividend paid plus a portion of the franking credits attached. As markets are not static the amount of this fall is often much more or much less than the dividend and franking credits - sometimes a stock will rise despite going ex dividend especially if the dividend is a small amount.

Stage 3: post dividend - this is a period after the ex dividend date in which a stock will usually tend to recover some of the price drop at ex div date - remember to take into account market sentiment and company outlook also in this period, as a rise does not always occur. In theory, the value of a company should continue to rise as it makes more profit.

How can I profit from the dividend period??

There are many ways to make profits around this time and they are discussed at "Ways to trade the dividend period" but the most important factor is to know when companies are going ex-dividend before it happens."