- What Happens if You Sell a Dividend Paying Stock After Receiving a Dividend?
- Should You Sell Stock Before or After the Dividend Pay Date?
- How to Sell Stock After the Ex-Dividend Date
- Income Tax: How to Figure the Price of Stock Sold
- Why Don't Investors Buy Stock Just Before the Dividend Date and Then Sell?
- What Happens When the Stock I Bought Has Less Value Than What I Paid for?
You can sell your shares as fast as you want after a dividend, but that doesn't mean you've stumbled upon a foolproof way to make a quick buck in the stock market because of how the dividends affect the stock price. Plus, Uncle Sam and the Internal Revenue Service might play a role in your decision as well.
While the dividend payment date determines when the company pays the dividend, it doesn't determine who gets the dividends. Instead, the ex-dividend date, which is set by the company, determines who gets the dividend. Anyone who owns the stock at the end of the ex-dividend date receives the dividend, even if the shareholder doesn't own the stock on the actual payment date. For example, say the ex-dividend date is July 1 and the payment date is August 1. If you own 100 shares on July 1, then sell on July 2, you receive the dividend for 100 shares on August 1 even though you don't own the stock anymore.
When a company pays a dividend, the value of the company's stock typically drops by the amount of the dividend per share after the ex-dividend date because the amount of cash the company has decreases. For example, if the stock is worth $20 before the ex-dividend date and the company is paying a 40 cent dividend, the price on the day after the ex-dividend date should be $19.60.
Dividend Tax Treatment
Before hustling off to sell your shares after the ex-dividend date, also consider how the sale affects the tax treatment of your dividends. Dividends receive long-term capital gains classification if you own the stock for at least 61 days during the 60 days before the ex-dividend date, the ex-dividend date itself and the 60 days after the ex-dividend date. If you own the stock for 60 days or less during that period, the dividends count as ordinary income, which is taxed at the higher ordinary income tax rates.
Stock Profit Tax Treatment
To have any profits from the stock sale treated as capital gains, you must own the shares even longer. Your profits from the sale only receive long-term capital gains treatment if you own the stock for more than a year. It usually won't come down to a day or two, but your holding period starts the day after you buy it and runs through the day you sell it. If you own the stock for a year or less, your profits count as short-term capital gains, which are taxed at higher ordinary income tax rates.
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