Manufactured Dividend
Definition
A cash payment a short seller makes to the share lender to compensate for dividends paid during the loan period. ATO rules govern the tax treatment, and the obligation often spikes around the ex-dividend date.
Related Terms
Franking Credits
Tax credits attached to Australian dividends representing corporate tax already paid. Recipients reduce their personal tax liability by the franking-credit amount. Short sellers must compensate lenders for any franking value missed on the loaned stock — a 'frank' or 'manufactured dividend' adjustment.
Ex-Dividend Date
The first trading day a stock trades without the right to its declared dividend. Buyers on or after this date do not receive the dividend. Stocks typically drop by the dividend amount on the ex-date, which short sellers must compensate lenders for.
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