I consider myself a reasonably knowledgeable investor, but today was blown away by the fact that I didn't know that a stock's price is decreased by the amount of its dividend. To use a concrete example (these numbers are roughly correct but not exact to the penny):

Nokia (NOK) closed at 9.31 yesterday, and paid a 5% dividend. So its open price was 8.86 today, and it seems to be trading normally, as if its price was "normally" 8.86.

So a few questions:

1. What's the point of paying a dividend if the stock price automatically decreases? Don't the shareholders just break even?

2. I assume the price of the stock "naturally" increases over the year to reflect the amount of the dividend payment. This is kind of a vague question but then doesn't it make it difficult to evaluate the fluctuations in stock price (in the way that you would a company that doesn't pay a dividend)?

3. With respect to options, I assume nothing special happens? So say I bought $9 call options yesterday that were in the money, all of a sudden they're just not? Is this typically priced into the option price? Is there anything else I need to know about buying options in companies that pay dividends? What if I had an in-the-money option, and all of a sudden out of nowhere a company decides to pay a dividend for the first time. Am I just screwed?

4. Finally, do all companies reduce their stock price when they pay a dividend? Are they required to? I'm just shocked I've never heard of this before.

Sorry that's a lot of questions - just looking for some general information here since this is all new to me.

I consider myself a reasonably knowledgeable investor, but today was blown away by the fact that I didn't know that a stock's price is decreased by the amount of its dividend. To use a concrete example (these numbers are roughly correct but not exact to the penny):

Nokia (NOK) closed at 9.31 yesterday, and paid a 5% dividend. So its open price was 8.86 today, and it seems to be trading normally, as if its price was "normally" 8.86.

So a few questions:

1. What's the point of paying a dividend if the stock price automatically decreases? Don't the shareholders just break even?

2. I assume the price of the stock "naturally" increases over the year to reflect the amount of the dividend payment. This is kind of a vague question but then doesn't it make it difficult to evaluate the fluctuations in stock price (in the way that you would a company that doesn't pay a dividend)?

3. With respect to options, I assume nothing special happens? So say I bought $9 call options yesterday that were in the money, all of a sudden they're just not? Is this typically priced into the option price? Is there anything else I need to know about buying options in companies that pay dividends? What if I had an in-the-money option, and all of a sudden out of nowhere a company decides to pay a dividend for the first time. Am I just screwed?

4. Finally, do all companies reduce their stock price when they pay a dividend? Are they required to? I'm just shocked I've never heard of this before.

Sorry that's a lot of questions - just looking for some general information here since this is all new to me.