This is a simple video to explain what is a homemade dividend. So with respect to dividends, not every company pays dividends, not every shareholder wants dividends. So when a dividend is paid to shareholders, stock price is adjusted down as much as the dividend.
So let's assume, as an example, a stock price is a hundred dollars and a company pays a dividend of two dollars. The day after the actual dividend payment, the stock price will be adjusted down to $98. And this is an automatic adjustment. Obviously, next day, the stock will trade in the market and the price could go up and down, and that's just the usual natural pricing of the stock.
But when a company pays a dividend, the stock price will be adjusted down automatically, at night, actually, based on the amount of dividend that's paid out. Now, let's assume we own 100 shares. Before the dividend payment, the stock... worth $100 per share, and we own 100 shares, and we're going to have $10,000 in total of net worth. Now, after the dividend payment, so let's assume we own 100 shares, and after the dividend payment, shareholders will own, well, stock that's worth $98.
We received the cash dividend, that's $2, and therefore, we're still going to own $10,000 worth of assets, stocks, and cash. So that's $98 per share, 100 shares, $9,800. And then $2 per share, 100 shares, $200. And all in all, we'll have $10,000. So notice shareholders may want to own shares of a company that does not pay dividends.
And they may still want to receive periodic payments. So I want to own a company that doesn't pay dividends. But time to time, I need money to spend and I may actually want to homemade dividends. So how is it made?
Before the actual action of homemade dividend, let's assume we all own 100 shares. Before the homemade dividend stock is worth $100 per share and we own 100 shares and therefore we have net worth of $10,000. Now, the actual homemaking of dividend.
We sell two shares at $10,000. at $100 per share, we're going to receive $200 cash. And now we're left with 98 shares. Now notice, since there is no actual dividend payment, there is no stock price adjustment, like a stock that actually pays a dividend. So since there is no actual dividend payment, there is no stock price adjustment.
And so what happens after the homemade dividend? Let's assume we initially owned. 100 shares. And after the homemade dividend, shareholders will own a stock that's worth $100 and cash $2 and all in all $10,000.
So how does that calculate it? Well, it's $100 per share stock. Remember, because the company did not pay dividends, there is no price adjustment. And there are now 98 shares left. So that's $9,800 worth of stocks.
We sold two shares at $100 each. So we received $200 in cash. So all in all, we have $10,000.
So actual dividend versus homemade dividend, both end up with $9,800 worth of stock and $200 cash. And that's about it. So thank you. Bye now.