The ex-dividend date: Mildura Chem Co is currently trading at $22.00 per share. The company is paying a regular cash dividend of $0.30 per share, and a special dividend of $0.05 per share. Tomorrow is the ex-dividend day. The tax rate on dividends is 15 per cent. Assuming there is no new information released about the company, how much do you expect the company's shares to trade for tomorrow?

Question

Quizplus · Accepted Answer

The ex-dividend date means that anyone who buys the shares from tomorrow onwards will not be entitled to receive the dividend. Therefore, the price of the share typically drops by the amount of the dividend. In this case, the total dividends paid per share are $0.30 regular dividend + $0.05 special dividend = $0.35. The after-tax dividend will be $0.35 * (1-0.15) = $0.2975. Thus, we can expect the share price to drop by $0.2975, making the expected share price tomorrow $22.00 - $0.2975 = $21.70.

The Ex-Dividend Date: Mildura Chem Co Is Currently Trading at $22.00