What is the Connection between a Share Price and Dividend?

Companies have the option in when they are going to pay their dividends. This is important for shareholders who have a stake in the company, but as a trader what does this mean to you?

When a stock goes ex-dividend the share price drops. For a newbie this may seem to happen out of nowhere or for no reason, but the stock is actually trading ex-dividend. It dropped not because other traders are taking profit, but due to the fact that it is compensating for the dividend that was paid. So until the pay date comes around the stock will trade lower. The only hope in this situation is if the share price regains the drop before its traded normally.

Traders can take advantage of this through a strategy called Dividend capture. The stock is bought two weeks before it goes ex-dividend as the price drops . The stock will be then sold two weeks after the ex-dividend date to collect the dividend and make a small profit. The theory behind this is after the ex-dividend date, the stock's price will hopefully regain its drop, enabling the trader to sell above the purchase price.

This is just one among many different ways to make money out of payout dividends.