Dividends can be a problem for short sellers.

A reader asked the following question  – “If I short sell a stock, then am I liable to pay the dividend?”

The simple answer is yes.

When you own a stock or have a ‘long’ position in the stock then you are entitled to receive any dividend payments.

Short selling a stock is literally the opposite of being long or owning the stock.

You have sold something that you never owned – that is known as ‘short selling’

In simple terms, the benefits of being long, become liabilities when you are short the stock.

Therefore, as a short seller, you have to pay the dividend.

Any derivatives and future contracts where you are effectively short the stock will also result in you having to pay any declared dividends.