You have the right idea, but the wrong details. You start off with one of them: " the stock will AUTOMATICALLY open down $4 on Friday morning from Thursdays's close"
No, it's not automatic, and it won't necessarily open down by the exact amount of the dividend. The market is free to open it at any auction-established price, just like with every other trade. The reason it opens lower by about the amount of the dividend is because traders are not willing to pay the same price as the day before, when on the ex-date the stock no longer trades with the right to the dividend. It's very rare for a stock to open exactly at the previous day's close minus the amount of the dividend. It can happen, but it does so far less often than not.
"when it opens $4 lower than its previous close, it will trigger all kinds of stops and pre-established sell orders"
No, it doesn't. Here's where the automatic adjustment happens: All open orders for a stock are adjusted by the amount of the dividend before the open of trading on the ex-date. That prevents pre-existing stop orders from triggering simply because of the dividend markdown. The only open orders that are not automatically adjusted down are those placed with a Do Not Reduce restriction.
"You aren't gaining anything by trying to capture the dividend unless you expect the stock to quickly recover."
I agree with that. It's silly to buy a stock just to get a dividend.
"It means this: Every time the company pays a dividend, the strike price of the conversion ratio lowers by that same amount."
Yeah, we know how it works.
"This is predicted to be about $4 or $4.50 per share if the company continues to pay at the current level of dividends for the next two or three years here."
"If" being the most important word. The level of this company's dividends have in no way been reliable. You're talking like they're set in stone.
"This means an expected dilution level of dividing by 1.4 "
No, it means a potential dilution level. An expected level can't be known without knowing what the dividends will be in the future AND when every note is converted.
"The conv bondholders are getting a huge win here as the terms of the bonds are that they receive 4.5% interest rate until September 2019, and then allow the bondholders to cross over into common stock at roughly $4 per share or so then."
They won't be getting a huge win if the stock's trading at two bucks in 2019. You are assuming you can accurately predict an awful lot of variables over the next three years.
"Also, all the new shareholders will be causing a major dilution on the earnings"
That's already accounted for. Accounting standards require it. That's why two earnings figures are always included in the Q and Annual reports: EPS - basic and EPS - diluted.
Footnote 7 tells you that the convertible notes are already accounted for: "Diluted shares include the dilutive effect of the convertible senior notes and restricted shares granted to management and members of the board of directors."
"you will be getting stock in a new reit, without losing any stock from HCP"
You'll still have the same number of shares of HCP but are you not aware that the value of the spinoff will be deducted from the stock price of HCP on the distribution ex-date? Owning two stocks with a combined value of the old HCP isn't a bonus. If somebody gives you two fives for a ten dollar bill, do you consider that a bonus?
It doesn't dilute your HCP holdings, it splits them into two parts. On the morning of the ex-date of the spinoff, you'll have shares of both HCP and the spinoff company. The value of the two parts added together will equal (or very nearly equal) the price of HCP on the day before the ex-date. On the ex-date the price of HCP will adjust down by the value of the spinoff shares. After that they go their separate ways.
"It has been suggested by posters on this board that when the split is announced, shareholders will have had to be holding their shares for at least 90 days in order to receive shares in the new company"
That's only because those posters don't know what they're talking about.
"I scan most of the filings and press releases, but don't recall reading of such a requirement anywhere."
The only reason you can't find it is because no such requirement exists.
"Does anyone have experience with other companies who have split in a similar way that Alcoa is planning to do, and was there a holding period requirement in order to get shares in the spinoff company?"
Yes, there is always a holding period requirement with spinoffs, and it is always exactly the same for every spinoff: To receive a spinoff, you must be a holder of the parent company shares as of the close of extended hours trading on the last trading day before the spinoff ex-date.
There will be no end of confusion and false claims on this board as the spinoff ex-date approaches, due entirely ignorance, fueled through both a general lack of understand and the fact that for this spinoff, quite unlike normal cash dividends, the ex date will be not before the record date but after it. To be specific, the ex-date for the spinoff will be the first trading day after the distribution date. To read up on how spinoff dates work, do a google search for Understanding Dividend Dates, click on the first return, and scroll down to that part that starts with Dividends of 25% or More of a Company's Stock Price. Spinoffs use the same rules as for dividends of 25% or more of a stock's price.
"you have to own the stock today or you miss out"
No, you have to be a shareholder of record today to get the dividend. You don't have to own the stock today. Owning a stock and being a shareholder of record are two different things. You don't become a shareholder of record until your purchase trade settles, three business days later, yet you own the stock the instant your buy trade executes. You also remain a shareholder of record for three business days after you sell a stock (until the trade settles), though you're no longer an owner the instant your sell trade is executed. So anyone who sold the stock on the ex-dividend date of March 29 remains a shareholder of record until tomorrow, April 1.
The wash rule doesn't apply to tax advantaged accounts and many traders don't care anyway. Very few short term trade decision are driven by tax consequences.
"Sounds like they are declaring it 5 days before the ex-div date, right?"
No. The ex-date is today, the 25th. The 29th, as it says, is the record date. The 29th is four days from today, not five, and in any case, it's the ex-date that determines who gets the dividend, not the record date.
But the stock price almost always drops by the amount of the dividend, so it's a wash. They're out the cash, but their short position is enhanced by the drop in stock price. At last year's special dividend of 4.10, the stock closed down over seven dollars on the ex-date and continued to trade down further for the next week or more. A short position would've been well ahead for not covering before the ex-date.
So my question stands. Why would any size special dividend scare shorts? The last special dividend was a boon to short sellers.
"Goes ex-dividend on the 7th so still time to buy and settle by then?"
To qualify for a dividend, a purchase has to settle by the record date, not the ex-date. The ex-date takes into account the three day settlement period necessary to become a shareholder of record on the record date. That's the only function of an ex-date -- to establish that as of that date, it's too late to buy the stock for the dividend.
"The fully diluted basis as shown now will be hugely different than the fully diluted basis in 3 years from now."
Perhaps hugely or perhaps only somewhat. If dividends shrink or stop during that time, the dilution won't be nearly as much as you claim. Because the notes are convertible at any time, the number outstanding could shrink at any time between now and 2019. Also, the company may buy some of the notes back before maturity. With so many variables, and because the notes are not publicly traded or quoted, the fully diluted figures in the quarterly reports are the most accurate assessments of the dilution potential, as no one knows at what price they will ultimately be converted.
"Ex Div Date 4/6/16 for those holding 4/8/16"
Not "holding 4-8," but "shareholders of record" on 4-8. Being a shareholder and being a shareholder of record are not the same thing. Anyone who sold today (4-6) will still be a shareholder of record on the 8th because it takes three days to settle a trade.