1

I understand that if I close a short position on the ex-dividend date then I owe the lender the dividend. It is taken from my account.

Where does the money the company pays for the dividend on those shares go?

2

When shares are shorted by B, they are borrowed from A and they are sold to C.

A has a book entry for ownership of the shares but the actual shares are owned by C who receives the dividend from the company. If B is short the shares on the ex-div date, he is required to reimburse A (the lender of the stock) for the dividends that he missed.

  • ^ this. In effect the shares get sold twice, the company obviously won't pay dividend twice just because someone shorts their stock. – xyious Jul 15 at 18:54
  • @xyious - Paying dividends by the company has nothing to do with shares getting sold twice. The problem is that there are two owners of the same shares on the ex-div date, due to the shares having been shorted and only one of the owners possesses the physical shares and receives payment from the company. – Bob Baerker Jul 15 at 19:10
  • Yes, we're in agreement, I just didn't make myself as clear as you did. – xyious Jul 15 at 19:20
0

So B "sells" to open 1 day prior to the exdate…

as such C is the buyer and due a dividend? But A still gets the dividend so is paid from B. So the company who issues the stock pays... C..?? Then B buys to close and keeps the diff of stock prices(+or-) minus the dividend payment which becomes part of the cost basis.....??

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