A dividend is a cash payment to shareholders as a reward for investing in company stock orequity shares. Ex-dividend means a company's dividend allocations have been specified. The ex-dividend date or "ex-date" is usually one business day before the record date.
Investors who purchase a stock on its ex-dividend date or after will not receive the next dividend payment. Instead, the seller gets the dividend. Investors only get dividends if they buy the stock before the ex-dividend date.
Key Takeaways
Ex-dividend means a company's dividend allocations have been specified.
The ex-dividend date is when the stock begins trading without the subsequent dividend value.
Investors who purchase stock before the ex-dividend date are entitled to the next dividend payment while those who purchase stock on or after the ex-dividend date are not.
Ex-Dividend Date
A stock trades ex-dividend on andafter the ex-dividend dateor ex-date.Investors who buy a stock on the ex-dividend date or after will not receive the next dividend payment. Since buyers aren't entitled to the next dividend payment on theex-date, the stock will be priced lower by the amount of the dividend by the exchange.
Some broker platforms might use an XD suffix to the stock's ticker to indicate it is trading ex-dividend.
Declaring Dividends
When a company declares a dividend, its board of directors establishes arecord date when investors must be on record as shareholders to receive the dividend payment. Once the record date is set, the ex-dividend date is also determined according to the exchange ruleson which the stock is traded.
The ex-dividend date is one business day before the record date. For example, if a company declares a dividend on March 3 with a record date of Monday, April 11, the ex-dividend date would be Friday, April 8, because it’s one business day before the record date. The ex-dividend date is before the record date because of how stock trades are settled.
After a stock trade, the transaction isn't settled for one business day, known as the "T+1" settlement. Investors with stock on Thursday, April 7 that is sold on Friday, April 8 would still be the shareholder of record on Monday, April 11, because the trade hasn't settled. However, if the stock sold on Wednesday, April 6, the trade would be settled on Thursday, April 7, before the ex-dividend date of Friday, April 8, and the new buyer would be entitled to the dividend.
Stock Price and Ex-Dividend
On average, a stock price will drop slightly less than the dividend amount. Given that stock prices move daily, the fluctuation caused by small dividends may be difficult to detect. The effect on stocks from larger dividend payments can be easier to observe.
If a company issues a dividend in stock instead of cash or the cash dividend is 25% or more of the value of the stock, the ex-dividend date rules differ. With a stock or large cash dividend, the ex-dividend date is set on the first business day after the dividend is paid.
Key Dividend-Related Dates
Declaration date: This is the date when a company's board of directors announces the dividend distribution. Any change in the expected dividend can cause the stock to rise or fall quickly as traders adjust their expectations. The ex-date and record date will occur after the declaration date.
Record date: This is when the company reviews who the shareholders of record are. The record date is one business day after the ex-date.
Payment date: Dividend checks are sent or credited to investor accounts.
What Is an Example of a Dividend Payment?
Suppose Company XYZ pays a $0.53 per share dividend on June 2, 2024. The payment goes to shareholders who had purchased stock before the ex-date of May 5, 2024. The company declared the dividend on Feb. 19, 2024, and the record date was set as May 6, 2024. Onlyshareholders who purchased the stock before the ex-dividend date are entitled to the payment.
Why Does the Stock Price Fall on the Ex-Dividend Date?
The price of a stock tends to fall by the amount of the dividend on its ex-dividend date, reflecting that its assets will soon be dropping by the amount of the dividend.
How Does the Ex-Dividend Date Help Investors?
If an investing strategy is focused on income, knowing when the ex-date occurs helps investors plan their trade entries. However, because the stock's price drops by about the same value as the dividend, buying a stock right before the ex-date shouldn't result in any profits. The same applies if investors buy on or after the ex-date and get a "discount" for the dividend they won’t receive.
The Bottom Line
The ex-dividend date is one of four steps a company follows when paying dividends. The declaration date is when a company states its plans to issue a dividend. The record date is when the company determines which shareholders are entitled to a dividend. The ex-dividend date is usually the day before the record date. The payment date is the day when dividend payments are made.
Correction—Nov. 28, 2023:This article has been corrected to state the date when a new buyer would be entitled to a dividend.
The ex-dividend date or "ex-date" is usually one business day before the record date. Investors who purchase a stock on its ex-dividend date or after will not receive the next dividend payment. Instead, the seller gets the dividend. Investors only get dividends if they buy the stock before the ex-dividend date.
If you buy stocks one day or more before their ex-dividend date, you will still get the dividend. That's when a stock is said to trade cum-dividend, or with dividend. If you buy on the ex-dividend date or later, you won't get the dividend. The ex-dividend date is in place to allow pending stock trades to settle.
Investors must have bought the stock at least two days before the official date of a dividend payment (the "date of record") in order to receive that payment. The company pays out the dividend to shareholders.
The ex-dividend date is set the first business day after the stock dividend is paid (and is also after the record date). If you sell your stock before the ex-dividend date, you also are selling away your right to the stock dividend.
Another important note to consider: as long as you purchase a stock prior to the ex-dividend date, you can then sell the stock any time on or after the ex-dividend date and still receive the dividend. A common misconception is that investors need to hold the stock through the record date or pay date.
With dividends, the stock price typically undergoes a single adjustment by the amount of the dividend. The stock price drops by the amount of the dividend on the ex-dividend date. Remember, the ex-dividend date is the day before the record date.
If you buy a stock one day before the ex-dividend, you will get the dividend. If you buy on the ex-dividend date or any day after, you won't get the dividend. Conversely, if you want to sell a stock and still get a dividend that has been declared, you need to hang onto it until the ex-dividend day.
The 45-Day Rule requires resident taxpayers to hold shares at risk for at least 45 days (90 days for preference shares, not including the day of acquisition or disposal) in order to be entitled to Franking Credits.
Yes — Any sale that occurs on the ex-dividend date or later will exclude the pending dividend. You will still be the owner of record in the company books when they distribute the payment. So, if you sell a stock on the ex-dividend date, you will still get the dividend about two weeks later.
Other drawbacks of dividend investing are potential extra tax burdens, especially for investors who live off the income. 3 Once a company starts paying a dividend, investors become accustomed to it and expect it to grow. If that doesn't happen or it is cut, the share price will likely fall.
“Dividend capture strategy” returns are the trading technique of buying a stock just before the dividend is paid, holding it just long enough to collect the dividend, then selling it. If you can sell it for as much as you paid, you have “captured” the dividend at no cost, other than the transaction costs.
The Procter & Gamble Company (NYSE:PG), Johnson & Johnson (NYSE:JNJ), and Colgate-Palmolive Company (NYSE:CL) are some of the best dividend growers to generate regular income as these companies have raised their payouts for decades.
Basically, an investor or trader purchases shares of the stock before the ex-dividend date and sells the shares on the ex-dividend date or any time thereafter. If the share price does fall after the dividend announcement, the investor may wait until the price bounces back to its original value.
If you're a long-term investor and receiving income from holding dividend stocks is your top priority, buy the stock before the ex-dividend date. This qualifies you to receive the upcoming dividend payment. However, be very aware that the stock price tends to drop by the dividend payout amount on the ex-dividend date.
This often causes the price of a stock to increase in the days leading up to its ex-dividend date. Then, when the market opens on the ex-dividend date, the security will usually drop in price by the amount of the expected dividend or distribution to be paid.
The ex-dividend date is the first day of trading in which new shareholders don't have rights to the next dividend disbursem*nt. However, if shareholders continue to hold their stock, they may qualify for the next dividend. If shares are sold on or after the ex-dividend date, they will still receive the dividend.
If you're investing a large amount, it's a good idea to find out if any dividends are coming up. If so, consider investing your money once that date has passed. This is one of the only situations when it might make sense to "time" your investment, and it only applies to large sums of money.
Introduction: My name is Kelle Weber, I am a magnificent, enchanting, fair, joyous, light, determined, joyous person who loves writing and wants to share my knowledge and understanding with you.
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