Ask Colin

When a stock goes ex-dividend, do you adjust your stop-loss?

This is a tricky question in the sense that there is no easy and clear answer. in other words, "it all depends".

In general terms, I make no adjustment for normal dividends. If there is a special dividend, that is effectively a capital return, then I would adjust my chart and therefore my stop.

However, for a normal dividend, in general terms, I make no adjustment to my chart or to my stop.

That said, we have to exercise our brain and judgment. If a dividend just hits a stop, I might wait to see if there is any follow-through on the stop. If there is, I would exit without delay.

There is also an interesting situation in a stock I am currently holding. They offer a dividend reinvestment plan where there is an attractive 7.5% discount on the average price over a period. What seems to be happening quite consistently is that it goes ex dividend and then for the period of the calculation of the price for dividend reinvestment, it sells off even more. I think this is market manipulation and therefore illegal, but ASIC seems to ignore it. I am taking this into account and looking at what happens after the period for calculation of the price.

So, what I am saying is that there is no simple rule. We have to think through the situations case by case.

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