What Is Ex-Dividend? – Everything You Need to Know

Probably most people in the trading industry know what dividends is. However, what about an ex-dividend, and what do we need to know about it? Let’s dive in.

The ex-dividend describes a stock that trades without the next payment value of the dividend. More specifically, the ex-dividend date is the day when a stock starts trading without paying the value of its next dividend.

Typically, the share dividend date is one business day before the record date. This means that an investor who buys a stock on the date of their dividend or later; is not entitled to receive the declared dividend. Conversely, dividends are usually paid to those who owned the shares the day before the dividend.

The stock trades on and before the ex-dividend date. If traders buy a stock on or after its former dividend date, they will not receive the next dividend payment. Whereas buyers don’t have to pay the next dividend on an exclusive date, the stock will adjust by the exchange in the dividend amount.

When a company decides to declare a dividend, the board of directors sets a record date. This is when a person must be on the company record as a shareholder to receive a dividend payment.

Once the record date is ready, the dividend date is also set according to the stock exchange rules, On which stock trading will be possible. This usually means that the previous date is one business day before the record date.

For example, if the company announced a dividend on March 3 with a record date on Monday, April 11, The expiration date will be Friday, April 8, as this is one business day before the record date.

What is ex dividend date – definition

The ex-dividend date is a key date for stocks and dividends. It marks when a stock starts trading without its dividend included. If you buy the stock before the ex-dividend date, you will receive the dividend payout.

This date is crucial because it determines who gets the dividend. Only investors who purchased the stock before the ex-dividend date are eligible for the dividend. The amount of the dividend is announced along with other important dates, like the payment date. Companies pay dividends to shareholders as a way to distribute profits. In summary, to receive a dividend payout, you must own the stock before the ex-dividend date.

An Example of an Ex-dividend

The ex-date occurs before the record date/ When trading takes place, the record of this transaction is not terminated within one business day, famous as a “T+1” settlement. Thus, suppose, investor-owned shares on April 7 but sell the stock on April 8; in that case, they will again be the record shareholder on Monday, April 11, as the trade can not close.

However, if the investor sells the shares on Thursday, April 7, then trading on April 8, Friday, which is the record date on Monday, April 11, the new buyer will have the privilege of dividends.

Investors must buy the dividend-paying stock at least one day before the record date; Because trade takes one day. Knowing when the expiration date will come if your investment strategy concentrates on more income will help you plan your trading records.

However, because the stock price falls by about the same value as the dividend, buying shares before an exclusive date should not result in any profit. The same thing happens with investors who buy on previous date or after receiving a “discount” on a dividend that they will not receive.

Additional considerations

Walmart, for example, paid a dividend of $0.53 per share on January 2, 2020. The payment, created to shareholders, purchased Walmart shares by December 5, 2019. The firm previously announced a dividend.

February 19, 2019, and the record date was set for December 6, 2019. Only shareholders who bought Walmart shares before the operation were eligible for cash payments.

On average, it can expect that the stock will decrease slightly less than the dividend amount. Given that stock prices are moving daily, detecting fluctuations caused by small dividends can be complex.

It is easier to observe the effect on shares due to paying a more significant dividend.

If a company issues a dividend instead of cash in stock, the rules for the date of the dividend stay are slightly different. In the case of a stock dividend or a large cash dividend, the dividend date is on the first business day after the dividend payment.

Conclusion

Besides the dividend date, there are other vital dates in the dividend distribution process. For example, Date of Declaration: The date of the declaration is the date of the same announcement when the company’s board of directors announces the dividend distribution.

This is an important event because any change in the dividend payment could lead to a rapid rise or fall in shares; Traders will adjust to the new expectations. The date of the dividend and the date of the entry will appear after the date of the declaration.

Record Date: A record date is when a company searches for who the shareholders of the record are. The record date is one business day from the previous date; However, it should not be a significant factor in the investor’s decision-making process.

Payment Date: The payment date is when investors receive dividend checks to their accounts. The event should not impact the share price before the payment date is obvious in advance.

Ex dividend date – FAQ

Will I get dividend if I buy on ex-date?

If you buy a stock on its ex-dividend date, you will not get the dividend. The ex-dividend date is when the stock sells without the right to its next dividend payment. To qualify for the dividend, you must buy the stock before the ex-dividend date.

Is it better to buy before or after ex-dividend date?

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 investors want to receive a stock’s dividend, they have to buy shares of stock before the ex-dividend date.

How soon can I sell stock after ex-dividend date?

You can sell the stock any time after the ex-dividend date and still get the dividend. You don’t need to hold it until the record date or the payout date.