Someone explain this to me. If a stock trading for a dollar pays a dividend of 2.5 cents, yet opens up down 2.5 cents on the ex-dividend date, how is it a gain for me? It appears they are paying me with my own money. The stock answer is "it will come back", but that doesn't answer the question. If it doesn't come back, it seems that I don't make anything. I need someone smarter than me to explain.
"If a stock trading for a dollar pays a dividend of 2.5 cents, yet opens up down 2.5 cents on the ex-dividend date, how is it a gain for me?"
"It appears they are paying me with my own money."
In the very short term, they are.
"If it [the stock price] doesn't come back, it seems that I don't make anything."
If the stock price doesn't come back, then you haven't made anything.
Investing for dividends isn't something that works in the short term. When you buy a stock for its dividends, you're buying the company's profit earning power, and over time those profits are paid to you in the form of dividends. When the stock price is reduced by the amount of the dividend on the ex-date, it's a proper adjustment of value to reflect the decrease in the stock's net worth when the next buyer is not entitled to that dividend payment. But over the next dividend period (whether it's monthly, quarterly or even longer), as the company earns more profits from which to pay the next dividend, the stock price usually recovers, and as that cycle repeats, you are indeed ahead for having been paid dividends. But that's not always the case. When a company isn't earning the dividend it pays, the stock price usually doesn't recover. This is especially true with large special dividends that come not from profits but from sales of subsidiaries, partial liquidations of even legal settlements. Those are not recurring earnings, so there's no reason to expect the stock price to recover after the ex-date. Yet, with those kinds of non-earnings dividends, people always seem to jump into the stock on the dividend declaration, driving up the price in absolute pointlessness.
So, dividends are a sham only if the price of a stock is run up irrationally simply to get a non-recurring special dividend, and that's the fault of the investors, not the company.
Most people dont buy dollar stocks for a dividend. That's silly. Most people buy mid to large cap stocks for the dividend. Mid to large cap stocks are (supposed to be) less volatile. FYI, a good dividend stock today yields 6+%
Get a clue. I was using a dollar as a simple example. It is the process of paying me dividends with my own money i.e. reducing the trading price of the stock by the amount of the dividend when it goes ex-dividend.