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Recently I sold 3006 DLS shares the day before the ex-dividend date.

On the ex-dividend date, for the same amount of the sale, I bought 3052 DLS shares.

I have therefore gained 48 DLS shares.

So how have I not gained? I have 48 extra shares at the ex dividend price, whatever it may be.

Thank you for your response.

Another example is VHT, ex-dividend date 21st June

Shares X div yield $1285. By selling pre dividend date and buying back on the dividend date net amount of shares were 14.5 @ $173.93 = $2521. I guess you win some and lose some, however I simply bought back at the market opening.

However my real reason to do this is that I am not subject to U.S. capital gains tax, but I am liable to a withholding tax of 30% on dividends.

So I suppose I gain by avoiding withholding tax.

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You’ve gained 48 shares, but you’ve lost the dividend your 3,006 shares would have paid if you’d just kept them. Assuming the markets have priced it correctly, which they usually do, those are worth pretty much the same and your net gain is zero.

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  • It's not a question of the markets pricing it correctly. The stock exchanges reduce share price by the exact amount of the dividend on the ex-dividend date, prior to the resumption of trading. What happens after that depends on whether there is buying or selling pressure when trading opens. – Bob Baerker Jun 25 '19 at 10:56
  • @BobBaerker I'm curious about the mechanics behind your remark "stock exchanges reduce share price by the exact amount of the dividend on the ex-dividend date, prior to the resumption of trading" but I think it deserves its own question. Mind if I quote you (and link to this question) when I ask it? – Chris W. Rea Jun 25 '19 at 12:06
  • Hi Chris. I read once that in a few countries, share price is not reduced on the ex-div date. I don't remember which ones since I'm only concerned about where I invest/trade. So to be more accurate, it's "stock exchanges IN THE U.S. reduce share price by the exact amount of the dividend on the ex-dividend date, prior to the resumption of trading". By all means, feel free to post a question about this. Also, what do you mean by mechanics? Are you asking for sourcing of for me to demonstrate this? – Bob Baerker Jun 25 '19 at 13:26
  • @BobBaerker Thanks! I'll ask the question later and explain there what I'm curious about. Mechanics as in by who specifically, and what prices specifically, etc. but I'll explain in my question. – Chris W. Rea Jun 25 '19 at 17:28
  • @BobBaerker Asked. Along the way I think I reasoned my way to the right answer -- maybe -- but the answer to my question could be of interest to others as well. Here it is: How do stock exchanges in the U.S. specifically account for dividends and ex-dividend dates? Thanks! – Chris W. Rea Jun 26 '19 at 14:30
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Stock exchanges reduce share price by the exact amount of the dividend on the ex-dividend date so if one does nothing and the security is held in a non sheltered account in the U.S. then all one would gain would be a taxable event and negative total return.

In a perfect world where you could sell at the close on ex-div eve and buy at the adjusted close the next morning, you would end up with more shares at a lower price but the same positional dollar value, excluding slippage and commissions. In the case of DLS, that would mean an extra 54+ shares.

However, it's not a perfect world and the security can open higher or lower in the morning due to buying or selling pressure. You netted fewer shares because you can't trade at these exact prices. No big deal..

What did you gain? As intended, you avoided the withholding tax of 30% on dividends.

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    I believe there may be more effects than "avoid the withholding" of changing the tax treatment of his payout from "dividend distribution" to "capital gain". Depending on whether the dividend would have been qualified or not, and whether the capital gain is short- or long-term, that could be good or bad. – Ben Voigt Jun 26 '19 at 14:54
  • The context of the OP's question is how to avoid the 30% withholding tax on dividends. Asked and answered. Now as for your 'changes', the OP indicated that he is "not subject to U.S. capital gains tax" so I would guess that you have no idea what taxation he is subject to or if any of your 'changes' are applicable. – Bob Baerker Jun 26 '19 at 15:12

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