One of the topics I’m constantly asked to explain is the concept of dividends, ex-dividends and other similar questions; often by people who think getting into a stock simply for the special dividends and getting out right away is a good idea. You’re only doing yourself the favour of turning your principle into a taxable liability.

I thought about doing more to debunk dividend myths, but why lift a finger when The Motley Fool has already done a 2 part story to debunk 7 common dividend myths. I’ll summarize them here.

1. Stock prices do not adjust downward when dividends are paid.
2. Only the stock price is adjusted.
3. All dividends are taxed at the special lower rate.
4. Everything is reported to you correctly on the 1099-DIV form.
5. Everything called a dividend is really a dividend.
6. Stock splits are not dividends.
7. I can buy just before the ex-dividend date, catch the drop in price, and record a capital loss.

Be sure to read part 1 and part 2 for the full details and explanations! A note to Canadian readers that some of these facts are geared towards American investors. But there are still tidbits well worth your time, especially if a large portion of your dividend companies are American!