It is known that stock prices will fall by the amount of the dividend on the ex-dividend date:

My question here is related but different: in the period before the dividend is paid, do stock prices rise by the expected amount of the dividend, before dropping by the amount of the dividend on the ex-dividend date?

Suppose the risk-free rate is a constant 5%. Suppose a company has no liabilities, no expenses, pays no tax, has $100,000 in invested in a risk-free 5% bond that pays a coupon at the beginning of each calendar year, and has 10,000 shares outstanding. The company pays out all its earnings from the bond coupons — $5000 per year or $0.50 per share per year — as dividends to its shareholders at the beginning of each calendar year. The stock price at the beginning of 2022 is $10. Does this mean that over the course of 2022, the stock price will slowly rise to $10.50, and then suddenly fall to $10 at the beginning of 2023 when the next $0.50 dividend is paid?

In other words, do the stock prices of dividend-paying stocks have a similar behavior to the zig-zag dirty price of bonds, where the dirty price steadily increases due to accrued interest before suddenly dropping on the date a coupon is paid? In the case of dividend-paying stocks, does this mean that stock prices steadily increase due to "accrued dividends" before suddenly dropping on the ex-dividend date?

This question is partially motivated by Jay's controversial answer to If stock price drops by the amount of dividend paid, what is the use of a dividend.

  • It would be hard to tell because bonds are buffeted by interest rate changes and expected interest rate changes so much it drowns out that tiny daily uptick. Oct 21, 2022 at 7:36
  • Preferred stocks often behave as you describe except that such zig zag price movement is secondary to investor sentiment, primarily due to change in interest rates. Company news can also be a factor. In the absence of these factors, there is a tendency to zig zag. Common stocks? Not so much. Oct 21, 2022 at 23:47

5 Answers 5


Yes and no. Hopefully, the company has some actual income source that the dividends are coming from. If so, then that income will accrue. So it's not dividends themselves that are accruing, at least not directly, but rather what the dividends are coming from is accruing. And of course the general trend of the stock market is for stocks to increase in price, but the relationship between that general upward trend and dividends is even more indirect. The sawtooth patterns of bonds is due to time discounting of future income, so as the distribution date approach, the discounting of the coupon becomes lower and lower, and so the price goes up. The same effect will apply, although not as clearly, in stock prices through discounting of future dividends.


I think you are over thinking it. Yes, the dividend amount will influence price up to and around ex/pay date, but the other day to day influences also continue to apply.

It's just one factor, a known factor, but as on any other day there are other things going on. There are no men in white coats or some collective in a secret lair who raise or drop prices on significant dates. The fact is, as a holder or buyer, you will or will not be eligible for an up coming dividend for a particular amount per share. The market participants know that and adjust the offer/bids accordingly.

Oh, and dividends don't accrue. The likelihood and amount might change as the year progresses but it's not like a bond. It may be looking good then nothing happens, or vice versa. In terms of setting dividend amount, as various dates approach, there is more certainty around all the things that go into deciding a dividend but that's about it.

  • 2
    Actually, the exchange does adjust existing limit orders (that make up the bid/ask list) after a dividend to ensure that no one inadvertently buys at the pre-dividend price after the ex-div date. But I doubt they wear white coats.
    – D Stanley
    Oct 21, 2022 at 13:52

No, there is no fundamental reason why the value of a company would go up just because they are getting ready to pay a dividend. There may be some market sentiment that causes the price to rise, but it's not based on fundamentals.

Bonds are different. A bond's redemption value is worth the same before and after the dividend. The dirty price increases by the amount of accrued interest as time passes, and after a coupon is paid, there is no accrued interest to pay, so it drops back to the "clean" price. The clean price is stable, fluctuating only by interest rates and any change in the risk of the payer defaulting.


Most of the time no, I've seen enough trading on leading up to div and ex div, to say flat out no. However on ex div it always gap down.

For ex div day, if market is a big green day, it'll drop less than $div or even go up. If it's a big red day, it'll drop more than div amount.

If the stock is in a heavy dowtrend, it'll drop on the final day, and drop more than $div on ex div, regardless of what its sector is doing.

All speaking from experience.


Say a company has 10 million shares and pays out 100 million in dividends, ten dollars per share. That means 100 million disappear from its bank account, and the company is now worth 100 million less. That’s why the share price drops by 10 dollars per share, exactly the same as the dividend. As a share holder, you may have gone from one share worth $100 to one share worth $90, and $10 in your pocket.

But before paying the dividend, for example when the dividend is announced, there is nothing changing the value of the company. Nobody puts money into the company’s bank account when it announces a dividend.

  • "But before paying the dividend ... there is nothing changing the value of the company." — There is something changing the value of the company. The company may generate profits from its business, and those profits accumulate to increase the value of the company in the period before the dividend is paid.
    – Flux
    Nov 6, 2022 at 6:34
  • But that has nothing to do with the dividend payment.
    – gnasher729
    Nov 6, 2022 at 16:48

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