Blog What is the Ex-Dividend Date?

What is the Ex-Dividend Date?






An excellent feature of dividend-paying stocks is that they’re good for creating extra money to purchase more shares. You could also just supplement your current income. It is paramount that you know the ex-dividend date before investing to make sure that you receive a dividend payment.

The ex-dividend date demarcates the end of a cutoff period in which you can buy a stock to receive the next dividend payment in time. This date is different from your record date. Being knowledgeable about these dates is very important when you have dividend stocks in your portfolio.

Do I Need to Know the Ex-Dividend Date?

A stock that trades without the value of the next dividend payment is an ex-dividend. The “ex-date” of the dividend is the day the stock begins trading without the value of the next payment.

Generally, the ex-dividend date for a particular stick coincides with one business day before the record date. In other words, an investor who purchases the stock on its ex-dividend date or later will not be capable of receiving the declared dividend. More accurately, the dividend payment gets paid out to the person who owned the stock the day before the ex-dividend date.

Points to Remember:

  • An ex-dividend is when the dividend allocation of a company has gotten determined.
  • The day on which a stock starts trading without a dividend value refers to the ex-dividend date.
  • If an investor buys the stock before the ex-dividend date, they’ll have the right to the next dividend payment; those who purchase the stock on the ex-dividend date or after are not entitled to a payment.
  • The ex-dividend date takes place before the record date because a stock trade is “T+1”—this means that the record of the transaction isn’t complete for one business day.

Understanding the Basics of the Ex-Dividend Date

The ex-date takes place before the record date due to how the stock trade gets settled. When the trade happens, the record of the transaction will not get settled for a single business day. That representation is a “T+1” settlement

Examples:

If an investor owned the stock on Thursday, March 8, but sold the stock on Friday, March 9, the initial owner would still be a shareholder for the record date of Monday, March 12, since the trade hasn’t settled fully.

Or, if an investor-owned the stock on Thursday, April 7 but sold the stock on Friday, April 8, they would still be the shareholder for the record on Monday, April 11, because the trade hasn’t fully settled.

However, in the instance that the investor chose to sell his stocks on Monday, May 6th, the settlement would have occurred Tuesday, May 7th, which meets the record date of Friday, May 10th. The new buyer is now allowed to receive the dividend.

Investors must keep in mind that they have to purchase stocks that pay dividends a minimum of one day before the record date to allow for settling. If an investor is more focused on generating income, then it’s imperative to be aware of the ex-dividend date to play trades accordingly.

Purchasing a stock directly before the ex-dividend date probably won’t end in profit simply because the stock price usually drops the same amount of the dividend itself.

Why is the Ex-Dividend Date Necessary For Companies?

Perhaps you’re curious as to whether it’s necessary for all of these dates for dividend payments. Well, it’s all about the timing.

Companies need time to accurately record the share sales. It also takes about one business day for the stocks that pay dividends to settle after trades.

If the company announces all the dates (ex, record, and payout), it assists the company with avoiding complications regarding which investor owns which stock shares when it’s time to pay. 

It’s also beneficial for investors that want to leverage their dividend stocks in the portfolio.

Don’t forget that you need one whole day before the record to reap the benefits of a dividend payout.

Final Thoughts

There’s a lot that comes with investing in the stock market; you have to learn a lot of information to set yourself up for success.

You have to develop a plan for the types of stocks that you want to invest in and what your focus will be as your portfolio grows. What do you hope to get out of being an investor? Do you want quick returns, or are you looking into long-term gains?

These are the types of questions that you have to ask yourself before you leap investment.

Aside from these tips, knowing specific dates will also help you stay on top of your portfolios.

As a dividend investor mark the dates down and make sure you don’t miss out on any payments that you’re entitled to! On the plus side, if you do forget the dates, you will still be eligible to get paid on the next payout if you’re on the books.