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What Is Ex-Dividend?
You know a dividend is a cash payment companies make to shareholders as a reward for holding their stock. When I say ex-dividend, I'm referring to the point where the company's dividend allocations are set in stone. The ex-dividend date, or ex-date, is usually one business day before the record date.
If you buy a stock on its ex-dividend date or later, you won't get the next dividend— that goes to the seller. To receive it, you need to purchase the stock before the ex-date.
Key Takeaways
- Ex-dividend indicates that dividend allocations are specified.
- The ex-dividend date is when the stock trades without the upcoming dividend's value.
- Buy before the ex-date to qualify for the dividend; buy on or after, and you miss it.
Ex-Dividend Date
A stock starts trading ex-dividend on and after this date. If you buy then or later, no dividend for you. Exchanges adjust the stock price lower by the dividend amount because buyers aren't getting that payout.
Some brokers add an XD to the ticker symbol to show it's ex-dividend—keep an eye out for that.
Declaring Dividends
When a company declares a dividend, the board sets a record date for who gets paid. The ex-date follows exchange rules, usually one business day before the record date.
Take this example: dividend declared March 3, record date April 11 (a Monday), so ex-date is April 8 (Friday). This timing accounts for T+1 settlement, where trades settle the next business day.
If you own stock on April 7 and sell on April 8, you're still on record for April 11 since the trade hasn't settled. Sell on April 6, and the buyer gets the dividend because their trade settles before the ex-date.
Stock Price and Ex-Dividend
On average, the stock price drops by a bit less than the dividend amount on the ex-date. For small dividends, daily fluctuations might hide it, but larger ones make it noticeable.
Rules change for stock dividends or cash ones over 25% of stock value—the ex-date is the first business day after payment. Remember, stock trades settle the day after the transaction.
Key Dividend-Related Dates
Declaration date: That's when the board announces the dividend, and stock prices can swing based on expectations.
Record date: Company checks who owns shares then—it's one business day after the ex-date.
Payment date: When dividends hit your account.
Explain Like I'm Five
A dividend is a company sharing profits with stock owners. They announce it ahead, and some folks buy just for that payout.
To get it, own the stock before the ex-date—buy the day before or earlier. Buy on or after, and you miss out.
What Is an Example of a Dividend Payment?
Say Company XYZ pays $0.53 per share on June 2, 2024. You get it if you bought before the May 5 ex-date. Declaration was Feb. 19, record date May 6.
Why Does the Stock Price Fall on the Ex-Dividend Date?
Prices often rise before the ex-date due to the dividend's value, then drop by a similar amount after, since that value is gone.
How Does the Ex-Dividend Date Help Investors?
If you're after income, track ex-dates to time buys. But the price drop offsets the dividend, so buying just before won't net profit, and buying after gives no discount edge.
The Bottom Line
Ex-dividend is one of four dividend steps: declaration announces it, record determines who gets it (day after ex-date), ex-date is the cutoff, and payment is when you receive it.
Correction—Nov. 28, 2023: Updated to clarify when a new buyer qualifies for the dividend.
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