What are corporate actions?
Corporate action refers to any activity or event initiated by a publicly traded company that brings about a significant change in its structure, financial position, or ownership. These actions are typically undertaken by the company's management or board of directors and can have a direct impact on the company's shareholders, employees, and other stakeholders.
When a company distributes a portion of its profits to its shareholders as a cash dividend or additional shares.
When a company offers its existing shareholders the opportunity to purchase additional shares at a discounted price.
When a company divides its existing shares into multiple shares. For example, a 2-for-1 stock split would double the number of shares outstanding while reducing the price per share by half.
When a company repurchases its own shares from the market, reducing the number of shares outstanding and potentially increasing the value of remaining shares.
Mergers and Acquisitions
When two or more companies combine their operations or when one company acquires another company. This can involve the exchange of shares or cash payments.
When a company issues additional shares to its existing shareholders without requiring any payment, usually based on the number of shares they already hold.
When a company separates one of its business divisions into a separate independent entity, with the new entity having its own shares and ownership structure.
Notification on Dividend Adjustments
Dividend adjustments are important considerations for traders and investors, especially those who engage in trading stocks and CFDs. Dividend adjustments occur when a company pays out dividends to its shareholders, and these adjustments can have an impact on the underlying stock or CFD positions.
The ex-dividend date* refers to the date on which a stock no longer carries the entitlement to receive dividends. Investors who purchase the stock after this date will no longer qualify for the corresponding dividend distribution.
Frequently Asked Questions
How does dividend adjustments affect me?
- Dividend adjustments are applicable to Indices and Stocks and vary depending on whether you hold a long (buyer) or short (seller) position.
- Indices represent weighted baskets comprising multiple companies. When one of these constituent companies pays a dividend, it effectively reduces its value by the dividend amount. Consequently, the share price of the company experiences a decline on the ex-dividend date. In the context of an index, the extent of this price decrease is directly proportional to the size of the dividend and the weight of the company within that particular index. Therefore, dividend adjustments can range from being inconspicuous to significantly impacting the price of the index/share, necessitating further clarification.
How should I calculate Dividends on Indices/Stocks?
For buy trades, dividends may be received, and the calculation is as follows:
Dividend amount received = Units (Lots × Contract Size) * Dividend adjustment
For sell trades, dividends may be charged, and the calculation is as follows:
Dividend amount charged = Units (Lots × Contract Size) * Dividend adjustment
It is important to closely monitor dividend updates related to the respective indices while engaging in trading activities. A weekly updated table displaying upcoming dividends to be paid or charged is available for reference.
*Please note that the time zone mentioned is GMT+3, and it is important to adjust for your local time zone accordingly.
What does ex-dividend mean?
- The ex-dividend date is the day on which the stock no longer includes an entitlement to the upcoming dividend payment.
- Traders opening a position on the ex-dividend date won't be entitled to, or are required to pay, the dividend on their positions.
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