Dividend gap

A dividend gap is the break on the chart between the closing price of the last day on which the share still traded with the right to the upcoming payout and the opening price of the first day on which that right has already been detached from the security. The second day's buyer gets the same company and the same business, but without the approaching payment, so trading starts below the previous level and an empty space is left between the candles.

How the gap arises

The right to the payout is assigned to whoever is listed as the owner on the record date; because a trade does not reach the register on the day it is concluded, the security has to be bought "with the dividend" earlier — this cut-off is what the last day to buy describes. The first day without the right is the ex-dividend date. Nobody announces or draws the gap itself: the opening price is formed by the orders of participants, who move them in advance to the level without the payout, while clearing recalculates the limits of the price band from the new reference point.

The depth of the gap depends on what share of the price the payout accounts for, that is, on the dividend yield, and also on the tax rate at which holders will actually receive the money, on the liquidity of the security and on the overall movement of the market that morning: in a strong trend the gap may be masked or outweighed by the ordinary price action of the day.

Example: how to gauge the scale in advance

The expected size of the gap is conveniently measured against the dividend yield — it is what shows which part of the price the forthcoming payout makes up. For Sberbank this figure is 13,21 %, and roughly that share of the price is the measure of the expected depth of the gap on its ex-dividend date.

What the gap is not

The gap on the ex-dividend date is not a market reaction, and it is easy to confuse it with an ordinary price gap caused by news or an external shock: a gap as a phenomenon can be of any nature, whereas here the cause is purely a matter of settlement arithmetic. The second common substitution is the conviction that the gap will inevitably be bought back: the closing of the gap is a separate event with an uncertain time frame, and a gap smaller than the dividend is a normal outcome, not an anomaly.

The term is meaningless for instruments that have no payout at all: in a single-stock future the expected dividend is built into the contract price in advance — this is covered in the dividend in the futures price — so on the ex-dividend date it has no gap that would need to be explained by the payout.