Guide for the More Experienced

A stable dividend policy is one of the key reasons for investors to select particular stocks. By being “stable”, it refers to stable ex-dividend dates as well as stable dividend amounts.

Stocks will be subject to an ex-dividend event after a company declares a dividend distribution. Similarly, when a warrant issuer issues the warrant, the ex-dividend factor will have been reflected in the warrant price based on the dividend payment history and the expiry date of the product. If the ex-dividend date is in line with expectations, in theory, the warrant price will not be affected.

If the company changes its dividend policy, such as bringing forward or postponing the ex-dividend date, it is possible that the warrant price will be affected.

If the company brings forward the ex-dividend date, for products which would have expired before the old ex-dividend date, because the ex-dividend date is now brought forward to before the expiry date, the price of the underlying assets will be reduced ahead of schedule,

so a call warrant will be subject to a negative impact, while a put warrant will benefit.

An actual example is when, in 2018, the mainland insurer Ping An Insurance (2318) brought forward the ex-dividend date for the final dividend from early July to early June 2017. As a result, the prices of call warrants which expired at the end of June dropped due to the ex-dividend event ahead of schedule, while the prices of put warrants increased. If a company postpones the ex-dividend event to after the expiry date of a warrant, the price of the underlying assets will only be reduced after the expiry date. As result, a call warrant will be positively affected, while a put warrant will drop.

Note that even when a company brings forward or postpones the dividend distribution, if the expiry date of the warrant comes after the ex-dividend dates before and after the change, in theory, the warrant price will not be affected.