15

If I hold shares of a stock on the ex div date, I get a dividend. But if instead I were to short-sell the stock and not buy it back before that date, would I then be responsible for paying the dividend?

18

Yes, you would. You owe it to the person you borrowed the shares from.

(source)

  • but wouldn't the company itself pay you the dividend so you would just passing that dividend back to the owner? – Joe.E Jun 27 '11 at 23:14
  • 6
    @Joe E - No, because you don't own the stock. You've borrowed stock from Shareholder A and sold it to Shareholder B. The company pays Shareholder B, who has the shares. But Shareholder A ought to get the dividend too, and the company is not going to pay twice for the same shares; that's what led to my question. – Bruce Alderman Jun 28 '11 at 4:27
0

The answer provide by @mbhunter is correct, however there are contexts, shorting in spot market and carrying the position over settlement usually does not entail payment of dividend to the broker, one of the reason being post ex-date the price of the share downward adjusts to the extent of the dividend, so practically if you have shorted at 100 and post ex-date (assuming a dividend of 2 and no movement of the stock price), the price would slide to 98, the party who longed the stock @ 100 now is sitting on a price of 98 and received a dividend of 2 which equates to 100.

The above is also contextual to the law of the country governing the exchange and the security exchange board regulations.

-1

You could hold a long position in some company XXXX and then short your own shares (assuming your broker will let you do that). The dividend that would have gone to you would then go to whoever is holding the shares you short sold. You just don't get a dividend. If you're going to short in a smart way... do it on a stock you otherwise believe in, but use it to minimize the pull-backs on the way up.

  • 5
    That's not actually shorting at all, is it? It's just selling some of your stock. – RemcoGerlich May 13 '14 at 12:17
  • @RemcoGerlich I don't think that this answers the OP's question, but there is definitely a difference between selling your long position and simultaneously holding long and short positions in the same security. It's more subtle though and has nothing to do with dividends. – user32479 Nov 5 '15 at 20:54
-5

Well, if the short seller has to pay the dividend out of their pocket, what happens to the dividend the company paid out ?? Sounds like there are 2 divdends floating around, the short's, and the company's, but only 1 share of stock.

  • 2
    No, there is one dividend. The person who shorted the stock, borrowed the shares and sold them on the market and has to buy them back in a way such that the original owner doesn't notice them missing. Otherwise, why would anyone trust a broker who may lend out their assets without being compensated? – JB King Mar 7 '14 at 16:47
  • Just think it this way: The company pays a dividend to every issued share. If I borrow shares of someone and sell them, I haven't changed the total number of shares issued. Hence there is no 2 dividends. – hroptatyr Mar 12 '15 at 6:25

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