[chirau]

I'm not sure I completely got your explanation of the dividend effect on stock price. A company's cash in hand is not a part of its stock price. It contributes to sentiment on the stock, but is not part of the stock price itself. I could be wrong. The dividend payout does not come from stock price, it comes from revenue and profit, no? And isn't a dividend a testimony to profitability of company?

[seanhunter]

Yes to all of your questions. But the point is on day zero (technically the last "cum dividend" day) you get the stock plus the right to receive a dividend the next day, and on day zero + one (the first "ex dividend" day) you don't get the right to the dividend, but everyone who was a holder yesterday gets the dividend. So the stock price drops by the amount of the dividend.