This started out as a good explanation and then it really went off the rails. You conflated multiple issues and arrived at incorrect conclusions. The short answer is that in the US, share price is reduced by the EXACT amount of the dividend when a stock or ETF goes ex-dividend. That means that a share worth $100 at the close before ex-dividend with a $1 dividend will be worth $99 in the morning BEFORE trading resumes. What happened leading up to the ex-div date and after it is irrelevant. And the golden goose example is a ludicrous comparison.

@BobBaerker Yeah, the more you try to convince me of this, the more I think you don't really understand the fundamentals of stock valuation. How about this... You show me the valuation model for stocks that you believe in, and then we can discuss how dividends fit into that.

@BobBaerker Here's an article about stock valuation methods. Feel free to choose one or if you don't like those, point me to the one you think is right.

The more that you cite stock valuation, the more apparent it is that you don't know what's going on, on the ex-dividend date. Please stop conflating multiple issues. Share price reduction on the ex-dividend date has nothing to do with stock valuation. It's a mechanical event at one moment in time carried out by the stock exchanges.

@BobBaerker Answer the question or buzz off.

Stock exchanges reduce share price on the ex-dividend date by the exact amount of the dividend. And because of this, FINRA Rule 5330 (Adjustment of Orders) requires that all open orders must be reduced by this amount unless the dividend is less than one cent or the trader marks the order "Do Not Reduce". Go read about this and learn something.

@BobBaerker Why are you repeating what I wrote in this answer? I literally have a link to the rule. Answer the question: what stock valuation method(s) do you believe in?

Even if exchanges didn't mark it down, traders would. Exchanges mark it down as well to keep things simpler.

@JimmyJames How are you this confused?! It's baffling to me! We don't adjust a stock's price when they pay the CEO because tha pay goes to the CEO, not the stockholders. The payment to the CEO doesn't reflect any change in the company's value because right before the company paid the CEO, the company still had to pay the CEO the money in the future. So it's not a loss to the company and there's no reason it should reduce its value because the discharge of the obligation to pay matches the loss of the payment. Dividends adjust price because the stock no longer includes a right to the dividend.

@DavidSchwartz "The payment to the CEO doesn't reflect any change in the company's value because right before the company paid the CEO, the company still had to pay the CEO the money in the future." When they announce the dividend, they need to pay it in the future. Why is that different? You realize the cash comes from the same place, right? Dividends show up on the cash flow statement, just like any other operational expense. I think you'd be better off reading/studying about this than just making things up that seem right to you.

@DavidSchwartz A good place to start might be understanding fungibility, particularly understanding that dollars are fungible e..g., taking $100 out a bank account reduces the balance by $100 no matter what you spend it on.

@DavidSchwartz Here's a decent basic article that explains it succinctly: "When a company pays a large dividend, the market may account for that dividend in the days preceding the ex-div date by a rise in the price of the stock. This is because buyers are willing to pay a premium to receive the dividend. However, on the ex-div date, the exchange automatically reduces the price of the stock by the amount of the dividend."

@JimmyJames That's obviously nonsense. Why would buyers pay a premium to receive the dividend if the share price reduces by the amount of the dividend? The dividend doesn't create any investor value, it just moves it from the company (which the investors own anyway) to the investors directly. Before the dividend, they could just sell the stock to get that value. It belongs to the stockholders already. The stock price rises because the company's value goes up due to other factors such as revenue.

"Why is that different? You realize the cash comes from the same place, right?" Because the cash goes to the investors. Before the dividend, the investors owned the funds by virtue of indirectly owning all the company's assets. After the dividend, they own those funds directly. The company doesn't get any value in exchange for the dividend, as they do for paying salaries or other expenses that they make. So dividends reduce the value of the company while other expenses and expenditures generally don't.

For example, say there's an unexpected lawsuit against a company and there's an expectation of a $10 million judgment or settlement. You would expect the market cap to drop by $10 million (plus other anticipated expenses) because of this unexpected event. But as the company pays lawyers and pays the judgment/settlement, there's no reason for the company's price to drop because it's an even trade -- money for resolution of the problem -- so it doesn't reflect any change in the company's situation or value. But a company gets nothing in exchange for a dvidend. It's nearly unique for that reason.

@DavidSchwartz So your theory is that investors getting the cash makes the value go down. If it goes somewhere else, it doesn't. OK. Why would that happen on the ex-date then? Why not on the announcement of the dividend? The total pending dividend payment is public information at that point.

"Why would buyers pay a premium to receive the dividend if the share price reduces by the amount of the dividend?" You have it backwards. The premium is a temporary increase between the announcement and the ex-date. The 'decrease' you are talking about is when that premium is no longer applicable. It's pretty straightforward microeconomics.

@JimmyJames The anouncement of the dividend neither creates, destroys, nor moves value. There's no particular reason it should move the stock except that it does create the expectation of an increased rate of return in the future (as I explained). But it's largely expected anyway, because typically the market knows it was going to happen, so this is all already built in. (If you already knew this, why are you wasting everyone's time? If you didn't know this, how the heck didn't you know this?!)

@JimmyJames There is no premium associated with the dividend. The company's value goes up because it generates value just as all companies do. A dividend doesn't change any expectations about value the company will create. If anything, it reduces it because the company can't use the dividend money to generate future revenue. The decrease comes from the fact that stock sold before the ex date includes the value of the dividend in the stock value and stock sold after doesn't. (Or, another way to say the same thing, the company's value has decreased by the dividend funds it no longer has.)

@DavidSchwartz You can keep making unsupported assertions all you want but that will never convince me that my finance professor was an idiot. In any event, here's a simple problem that, if you can't understand, means you can never understand ex-dates: what is the net price difference between at $100 or that same widget at $120 with a $20 rebate?

@DavidSchwartz And presumably, since you think the idea that a dividend premium is 'obviously nonsense', you would also think the Dividend Discount Model or stock valuation is nonsense as well? If you are really serious about all these ideas you have, have you considered challenging these well-established theories of finance? If you overturn them, you could be a historical figure.

@DavidSchwartz "(Or, another way to say the same thing, the company's value has decreased by the dividend funds it no longer has.)" There's a major factual problem with that statement. The dividend is not paid out on the ex-date.

"The price of a stock will tend to increase between the dividend announcement and the ex-date by the amount of the dividend." This is not true in general - the article you link says it may increase based on market demand. There is no fundamental reason for the value of the company to change, unlike it does after a dividend since the company has less cash than it did before it paid it. If there was a fundamental reason to increase before the dividend, then markets would adjust like they do after the dividend to prevent the same arbitrage.

"There's a major factual problem with that statement. The dividend is not paid out on the ex-date." No, but it is obligated to pay it if you own the stock on the ex-did date. So it is effectively a debt until it is paid, reducing equity.

"what is the net price difference between at $100 or that same widget at $120 with a $20 rebate?" false equivalence - a better one would be - what is the value of a bank account with $100 in it versus the value of one with $100 in it and an IOU for $20? The IOU did not magically create $20 in value.

@DStanley "No, but it is obligated to pay it if you own the stock on the ex-did date." It's obligated to pay on the announcement date. The ex-date only determines who receives it.

@DStanley " There is no fundamental reason for the value of the company to change, unlike it does after a dividend since the company has less cash than it did before it paid it." Again, the dividend is not paid on the ex-date. But moreover, I think people are forgetting there's a seller as well as a buyer. Take the exchange out of the picture. Let say I held 1000 shares of MSFT and you wanted to purchase them from me directly. Tomorrow is the ex-date of a $0.75 dividend per share. Would you be willing to compensate me for the dividend? No? I'll wait and get my $750.

@DStanley I'm getting tired of the bold assertions that I am wrong without even a basic argument. How is my example "false equivalence" exactly? Assuming the opening sale on the ex-date is at the adjusted closing price (i.e., the last price minus the dividend), you pay the same exact net price. It's completely analogous to the example I gave. If you want to assert otherwise, you need to come with more than a "nuh-uh".

@DavidSchwartz "The announcement of the dividend neither creates, destroys, nor moves value. There's no particular reason it should move the stock" And why doesn't that same logic apply to the ex-date, based on your (personal) theory of finance? The ex-date is after the announcement date. Nothing about what the company is committed to pay changes on that date and no payment is made. What in your theory explains why the ex-date is when the exchange is required to adjust the closing price?

@DStanley "If there was a fundamental reason to increase before the dividend, then markets would adjust" Exactly. Now you are getting it. That's exactly what happens. The market adjusts by sellers requiring more and more compensation as the ex-date approaches. And buyers are more and more willing to pay to a premium that will be refunded up to that date. If it didn't work that way, it would be an arbitrage opportunity.