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According to Domino's Pizza's 10-K:

On April 17, 2007, our board of directors declared a $13.50 per share special cash dividend on its outstanding common stock totaling $846.4 million, which was paid on May 4, 2007 to stockholders of record at the close of business on April 27, 2007.

According to Yahoo, the price history of DPZ around this time looked like this:

|------------+-------+-----------------------|
|       date | close |                       |
|------------+-------+-----------------------|
| 2007-04-16 | 33.66 |                       |
| 2007-04-17 | 33.51 | <-- dividend declared |
| 2007-04-18 | 33.63 |                       |
| 2007-04-19 | 32.62 |                       |
| 2007-04-20 | 33.26 |                       |
| 2007-04-23 | 33.21 |                       |
| 2007-04-24 |  32.7 |                       |
| 2007-04-25 | 32.81 | <-- ex-div date?      |
| 2007-04-26 | 33.06 |                       |
| 2007-04-27 | 32.92 | <-- record date       |
| 2007-04-30 | 32.25 |                       |
| 2007-05-01 |  32.6 |                       |
| 2007-05-02 | 32.07 |                       |
| 2007-05-03 | 31.99 |                       |
| 2007-05-04 | 32.37 | <-- paid              |
| 2007-05-07 | 19.63 | <-- priced dropped    |
| 2007-05-08 | 19.86 |                       |
|------------+-------+-----------------------|

According to this stackexchange answer, you must own the stock on the record date to get the dividend. But as a practical matter, since it takes time for transactions to settle, you must purchase the stock prior to the ex-div date to actually get the dividend. Furthermore, the SEC says the ex-div date is usually 2 days prior to the record date. Therefore, it looks like the ex-div date should be on or around 2007-04-25.

Given these facts, why didn't the stock price of DPZ drop by about $13.50 (the amount of the special dividend) on the ex-div date (or at least prior to the record date)?

Did those who purchased DPZ between 2007-04-25 and 2007-05-04 foolishly lose out on receiving the special dividend? (and, conversely, did everyone who sold DPZ receive both the special dividend and over $30 per share?)

2
  • On it's face I suspect this is simply Yahoo's historical data methodology, but great question.
    – quid
    Commented Mar 28, 2018 at 19:09
  • Yes, the price history may be the weak link here. It would be interesting to find an upcoming, post ex-div date, (large) special dividend and see what price brokerages report the actual trading price to be.
    – unutbu
    Commented Mar 28, 2018 at 20:04

1 Answer 1

6

The short answer is that there are no free lunches. If you own the stock, you get the dividend and as such, share price is reduced by the amount of the dividend. As to the confusion...

Yes, you must own the stock on the record date to get the dividend and since the ex-div date is usually 2 days prior to the record date, you must own the stock before the ex-div date.

In your data chart, the day that the price dropped (5/07) was the ex-div date. But this is after the record date. What gives? Bad Yahoo data again? No. The biggest difference concerning special dividend stocks is that the ex-dividend (for special payouts) comes after the record and pay date, not before (like is the case with regular dividends or smaller special dividends).

Read this for clarification:

http://www.dividend.com/dividend-education/special-dividends-everything-investors-need-to-know/

3
  • Thank you. That's so weird it's got to be true.
    – unutbu
    Commented Mar 28, 2018 at 21:27
  • 3
    The key point from that page (that might be worth explicitly adding to your answer) is that if you sell a stock with a special dividend between the record date and the ex-div date, you are obliged to pass on the dividend to the purchaser. This is why the market price stayed high for the time it did.
    – TripeHound
    Commented Mar 29, 2018 at 7:32
  • 1
    Either way, you must own the stock on the ex-div date to receive the dividend. Commented Mar 29, 2018 at 12:23

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