Table of Contents
- What Is the Ex-Dividend Date?
- Key Takeaways
- Understanding the Ex-Dividend Date
- Ex-Dividend Date and the Stock Price
- Example of an Ex-Dividend Date
- Is It Better to Buy Before or After the Ex-Dividend Date?
- Will I Get a Dividend If I Sell Before the Ex-Date?
- How Long Should I Hold a Stock to Get the Dividend?
- The Bottom Line
What Is the Ex-Dividend Date?
Let me explain the ex-dividend date directly: it's the cutoff date you need to own a stock before to qualify for the next dividend payment. If you buy the stock on or after this date, you won't get that pending dividend.
On this date, the stock trades 'ex-dividend,' and its price adjusts to account for the dividend. You should know there are four key dates in the dividend process: declaration, ex-dividend, record, and payable.
Key Takeaways
The declaration date is when the company announces the dividend. The record date is when they list shareholders eligible for it. The ex-dividend date is when new buyers no longer qualify for that dividend. The payable date, often right after, is when the payment actually happens.
Understanding the Ex-Dividend Date
A dividend is a cash payment companies make to shareholders from their profits, drawn from retained earnings. Some companies reinvest everything, but others distribute part as dividends. You might see an 'XD' marker on your trading platform for stocks trading ex-dividend.
To grasp this, consider the four stages of dividend issuance. It starts with the declaration date, when the company announces the future dividend. Next is the record date, where they check who owns shares and qualifies. Then comes the ex-dividend date, set one business day before the record date, deciding eligibility—buy on or after, and you miss it; own it a full day before, and you're in. Finally, the payable date is when the money goes out.
Ex-Dividend Date and the Stock Price
You might want to buy before the ex-dividend date to get the dividend, but if you miss it, it's not always a loss. The stock price typically drops by the dividend amount on that date, since the company's assets decrease by that payout.
For example, if the dividend is 2% of the stock price, expect a 2% drop. So buying after could mean getting the stock at a discount matching the dividend, leaving you no worse off than those who bought earlier and got the payment.
Example of an Ex-Dividend Date
Take a company declaring a dividend on Tuesday, July 30, with a record date of Thursday, August 8. The ex-dividend date would be Wednesday, August 7, so buyers on or after August 7 miss the dividend, but those who bought by August 6 get it. Payment might go out on September 6, as the last date in the sequence.
Illustration of Key Stages of the Dividend Issuance Process
- Declaration Date: Tuesday, July 30
- Ex-Dividend Date: Wednesday, August 7
- Record Date: Thursday, August 8
- Payable Date: Friday, September 6
Is It Better to Buy Before or After the Ex-Dividend Date?
Buying before ensures you get the dividend, but after has benefits too, since the price often drops by the dividend amount due to market adjustments.
Will I Get a Dividend If I Sell Before the Ex-Date?
No, selling before the ex-dividend date means you're not on the record as eligible, so you forfeit the dividend.
How Long Should I Hold a Stock to Get the Dividend?
Hold it at least until the ex-dividend date; selling before that transfers your dividend right to the buyer.
The Bottom Line
If dividends matter to you, buy before the ex-dividend date and sell on or after it to claim the payment. Buying after might still work out, thanks to the price drop reflecting the dividend.
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