After rallying by as much as 9.6% last Thursday, following the announced completion of the $1.1bn sale of its US business, Main Event Entertainment, Ardent Leisure (ASX: ALG) found itself trading materially lower today.
A fall of today’s magnitude – down -64% at the close - would typically denote something horrendously bad had happened.
However, shareholders can breathe easier knowing today’s share price swan dive has more to do with recent corporate activity.
Following the sale of the Main Event business in the US to Dave & Busters shareholders voted in favour of plans to distribute $455.7m (95 cents per share) in sale proceeds in the form of:
A return of capital of $221m (46 cents per share)
An unfranked dividend of $234.7m (48.9 cents per share)
Based on Wednesday's open of $1.40, the 95 cents distribution represents a whopping 67% yield.
To be eligible for this dividend bonanza, investors had to be on the company register as shareholders by close of play on Monday.
The ex-dividend date is one business day before the Record Date is set.
Today the market witnessed Ardent’s share price fall by as much as dividend, which is by no means unusual.
So exactly why does a share price often drop by the amount the dividends are paid?
Simply put, when a company pays out a dividend, the value of the company is reduced by the amount of the total payout.
That’s because the amount paid out to shareholder’s will diminish the value of the company by a proportionate amount.
However, a dividend’s negative impact on a share price is usually only short term.
While a share price typically recovers some (or all) of the drop after the ex-date, there’s no hard and fast science around the timing.
If the dividend is small (for example only 2%), the reduction could simply get overlooked within the volatility of normal trading activity.
However, given the magnitude of Ardent's dividend payout, investors who bought the stock as part of a dividend capture strategy – which involves buying a stock before it goes ex-dividend and then selling it after it has recovered the payout – may have considerably longer to wait.
One of the keys to successfully executing a dividend capture strategy is to first find stocks that historically recover quickly after committing to a dividend payment.
After offloading Main Event, Ardent Leisure has achieved its goal of concentrating solely on its Australian-based theme parks & attractions business, comprising Dreamworld, WhiteWater World, and SkyPoint.
Commenting on the selldown of Main Event, the company’s chair, Gary Weiss, noted:
“The sale of Main Event now provides Ardent Leisure with the capital required to support the ongoing recovery, growth and development of our Theme Parks & Attractions business which is the Board’s principal focus.”
"Further investment in this business will better position it to benefit from expected increases in leisure spending, including as a result of increased levels of interstate and international travel to Queensland following the suppressed levels experienced during the COVID-19 pandemic.”
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