Adjusted for Dividends

[epsgrowth]

I am finding that some program will adjust for dividends and others won't. They seem to include it if they adjust for splits.

Does Adjusted for Dividends mean that the program will take out the dividend on stock prices prior to the dividend? So if the company posted a dividend on 6/1/04 of .50, would the stock price be reduced by .50 for all prices previous to that date?

So if the hi, lo and closing price of that stock on 5/31/04 was Hi 10.00, Lo 9.00 and Closing 9.50 and the dividend of .50 was paid on 6/1, would the price of the stock then be dropped by the dividend paid to Hi 9.50, lo 8.50 and closing 9.00?

Can anyone explain this and should the program be adjusting for the dividend?

Thanks

 

[RichardDale]

There are three methods for making adjustments for cash dividends.

1. Don't adjust at all.
If this is the case then all of your charts will show accurate levels of where real trades actually occured (eg. for support/resistance/trend lines). The theory is that people holding stocks only factor in the prices they actually paid for the stock, not the dividends they may have received along the way.

2. Adjust proportionally.
Here's an example:
Day 1: Stock trades at $10.00
Day 2: Stock trades at $10.50
Day 3: Stock trades at $11.25
Day 4: Stock goes ex-dividend, the dividend is $0.75, and finishes trading at $10.50

If we adjust proportionally the data becomes:
Day 1: $9.33
Day 2: $9.80
Day 3: $10.50
Day 4: $10.50 (the ex-day is not adjusted)

Benefits:
The % return from holding on Day 1 through Day 4 is retained and incporates any dividends paid.

Disadvantages:
The prices do not represent reality. Many technical analysts like to view data without adjustment for dividends as market behaviour is not really affected by dividends (eg. support & resistance levels).

3. Back adjust by a fixed level.
This is the method used by Yahoo. Here's the same example:
Day 1: Stock trades at $10.00
Day 2: Stock trades at $10.50
Day 3: Stock trades at $11.25
Day 4: Stock goes ex-dividend, the dividend is $0.75, and finishes trading at $10.50

Now, if we back adjust the data becomes:
Day 1: $9.25
Day 2: $9.75
Day 3: $10.50
Day 4: $10.50 (the ex-day is not adjusted)

Benefits:
The actual $ return from holding on Day 1 through Day 4 is retained and incporates any dividends paid.

Disadvantages:
- The prices do not represent reality. Many technical analysts like to view data without adjustment for dividends as market behaviour is not really affected by dividends (eg. support & resistance levels).
- % return is incorrect.
- Any indicators (such as moving averages, RSI etc.) will trigger at different levels than the previously unadjusted data.

 

[epsgrowth]

More about Premium Data

Richard,

I sent a message to Premium Data to ask about my needs and the pricing, but didn't hear back. Not sure if I should ask the question on this board, but hopefully you can answer. I need historical data to obtain hi, lo prices for each day for approx 10+ years. Do I just sign up for Historical Data (One time charge of $90), or do I also need to sign up for EOD for US Stocks at $45 per month? The pricing isn't very clear.

Can you explain?

Thanks

There are three methods for making adjustments for cash dividends.

1. Don't adjust at all.
If this is the case then all of your charts will show accurate levels of where real trades actually occured (eg. for support/resistance/trend lines). The theory is that people holding stocks only factor in the prices they actually paid for the stock, not the dividends they may have received along the way.

2. Adjust proportionally.
Here's an example:
Day 1: Stock trades at $10.00
Day 2: Stock trades at $10.50
Day 3: Stock trades at $11.25
Day 4: Stock goes ex-dividend, the dividend is $0.75, and finishes trading at $10.50

If we adjust proportionally the data becomes:
Day 1: $9.33
Day 2: $9.80
Day 3: $10.50
Day 4: $10.50 (the ex-day is not adjusted)

Benefits:
The % return from holding on Day 1 through Day 4 is retained and incporates any dividends paid.

Disadvantages:
The prices do not represent reality. Many technical analysts like to view data without adjustment for dividends as market behaviour is not really affected by dividends (eg. support & resistance levels).

3. Back adjust by a fixed level.
This is the method used by Yahoo. Here's the same example:
Day 1: Stock trades at $10.00
Day 2: Stock trades at $10.50
Day 3: Stock trades at $11.25
Day 4: Stock goes ex-dividend, the dividend is $0.75, and finishes trading at $10.50

Now, if we back adjust the data becomes:
Day 1: $9.25
Day 2: $9.75
Day 3: $10.50
Day 4: $10.50 (the ex-day is not adjusted)

Benefits:
The actual $ return from holding on Day 1 through Day 4 is retained and incporates any dividends paid.

Disadvantages:
- The prices do not represent reality. Many technical analysts like to view data without adjustment for dividends as market behaviour is not really affected by dividends (eg. support & resistance levels).
- % return is incorrect.
- Any indicators (such as moving averages, RSI etc.) will trigger at different levels than the previously unadjusted data.