What is Ex-Dividend Date?
The ex-dividend date is mentioned when a dividend payout announcement occurs. Even if a company is known to pay regular dividends (such as Dividend Champions), they must make payout announcement each time they issue a dividend.
The ex-dividend date is the date that’s exactly two business days prior to the date of record. What this means is that the firm that is giving out the dividend establishes and figures out exactly which individuals are entitled to receive a dividend from the company.
If you’re one of the investors that purchases the stock before this specific date then you are entitled to the dividend when it comes out. If you purchase the stock on this specific date or the time after it, then the previous owners are entitled to the dividend payout when it arrives. He will receive the dividend payout in cash even if he doesn’t hold the position at the time of the dividend issue. What is important is to know if you are holding the shares prior to the ex-dividend date, not when the dividend is paid.
Ex-Dividend Date Specifications:
- It’s two business days. Many new investors get confused because they figure that this two calendar days. That information is incorrect. To be one of the investors included in the dividend payout you must consider that it’s two business days.
- Trading point. To further demonstrate the significance of the ex-dividend date then please allow me to share this with you. If March 3rd is the ex-dividend date, then before this date the stock is trading at “with dividend” or “cum dividend.” After the ex-dividend date, the stock trades at “ex dividend.”
- Stock price. The stock price is affected by the ex-dividend date. Once the stock hits the ex-dividend date, then the price will be affected. It will obviously slightly go down since investors are more likely to sell shares after the ex-dividend date than before (if they plan to sell shares in the first place).
Ex-Dividend Date Example:
Let me conclude this article with a quick example:
Stock price: $10
Dividend payout: $1 per share
Date of dividend payout: March 3rd
Ex-Dividend Date: March 1st
Let’s say that you’re interested in a stock that’s currently trading at $10 a share. Now let’s assume that the board of director indicates that the stock will have a dividend pay out of $1 per share. The record date is announced as Thursday, March 3rd. This means that the ex-dividend date will be two business days prior to this on Tuesday, March 1st. By purchasing the stock on Monday, right before the market closes you’ll still be eligible for the payout since the stock is trading at “cum dividend.” If you want until Tuesday morning you will not be eligible for the $1 per share dividend.