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Most of my investments are in ETFs that I rebalance occasionally or purchase additional shares when I have cash. Currently, when I do a rebalance or an additional purchase, I don't look at the dividend dates.

Should I be looking at the dividend dates before I make a trade? E.g., should I try to make a purchase before the dividend date to get the dividend? Or is it all priced into the trading price so I shouldn't worry about it?

Any difference for trading in a taxable vs. non-taxable account?

UPDATE:

I'm in the U.S. Let's assume 15% LT capital gains and 28% tax bracket.

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    The main consideration in this is taxes - do you pay withholding tax on these ETFs? can you reclaim that tax? Are you taxed the same way on income vs. capital gains? The answers depend on your tax residence and on the tax jurisdiction where the ETFs are issued.
    – assylias
    Mar 18, 2016 at 13:12
  • Could you share your country/state, etc, of residence? That would be helpful.
    – DukeLuke
    Mar 18, 2016 at 13:22

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Economic theory states that the value of a security will drop by the dividend amount at the same instant that the dividend is paid (or committed, or allocated, or whichever equivalent verb you want to use). But I would contend that the theory here is outweighed by a lot of other variables that impact the price of that security. If you assume that all the other stuff is unpredictable, I'd prefer to capture the dividend rather than sell the security immediately before it's paid - if you sell on day 29 of a 30 day period you're forgoing the return for that month that you've already held the asset. Now you can argue that the market prices this in, but I'll contend that IF it does, you aren't losing anything by waiting a day... and if it does NOT you might be gaining something.

And I can't imagine any case where you would not want to get the dividend, regardless of having to pay taxes on it. Paying 40% of a dollar is a lot better than not getting a dollar at all, right?

An interesting way to back-test this would be to go find something that pays a dividend on a very regular basis, then compare the closing price on the day before the dividend and the day after. Again in theory the difference should be exactly the value of the dividend itself... but I'm willing to bet at least a nice dinner that it's not. ;-)

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  • Yeah, I'm not a big fan of the efficient market theory either. Lemming market theory often seems more appropriate. :)
    – new name
    Mar 18, 2016 at 22:18

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