A while ago I wrote the article Do Stock Values Drop After Dividend Payouts? and I discussed how yes in fact dividend pay outs do reduce the market value of the stocks. A commenter on that thread pointed out that the company Giant Interactive was going to have a large one time stock dividend. That would be a good opportunity to see the phenomenon in action.
Here is the detail on the dividend from Giant Interactive Announces Second Quarter Fiscal 2011 Results
"Special Cash Dividend. The Board of Directors has declared a one-time special cash dividend of $3.00 per ordinary share or ADS. The special dividend is payable to shareholders of record on August 31, 2011 and is expected to be paid on September 9, 2011. The Board of Directors approved this special dividend to give value back to shareholders, as the current cash position exceeds the short-term needs of the Company and cash flow from operations continues to be positive. The total amount of cash distributed in this special dividend is expected to be approximately $708.2 million net of one-time accrued withholding tax associated with the repatriation of cash for this special dividend intended to be paid, but may be subject to offshore withholding/income taxes and handling charges."
This Reuters article also mentions it Giant Interactive Group Inc Announces Special Cash Dividend
The stock was trading at $7.80 on the day of September 9th. So the $3 dividend should be clearly visible in the market value of the stock and it was so.
Here's the Yahoo chart for the days around that dividend.
|source: Yahoo Finance|
From the historical prices for GA we can see that on Friday Sept 9th the stock closed at $7.80, then the dividend was paid out for $2.99 and on Monday Sept. 12th the stock opened at $4.77. The difference in closing and opening for the stock is $3.03 which is just a few cents away from the $2.99 from the dividend.
So there you go a clear example of how a dividend pay out reduces the market value of a stock.