What is a cum-dividend bargain?

A cum-dividend bargain refers to a situation where both the buyer and seller of a security are entitled to receive the upcoming dividend due to the timing of the purchase. This term is used in securities trading to signify that the shares are being sold with the right to receive the next declared dividend.

When an investor purchases shares cum-dividend, they effectively acquire the rights to the dividend that will be paid after the purchase, which can influence the pricing of the shares. The market usually reflects this entitlement in the share price on or before the ex-dividend date, when the entitlement to the dividend is transferred from the seller to the buyer.

In contrast, the other provided options do not accurately depict the concept of cum-dividend. Purchasing shares before the dividend distribution does suggest acquiring shares entitled to a forthcoming dividend, but it does not capture the essence of both parties having rights tied to that same dividend, which is central to the definition of a cum-dividend transaction. Buying a bond after the dividend has been paid and purchasing bonds with fixed dividends only focus on fixed income securities rather than equity where dividends are concerned.