Ex-Dividend Date

What Is the Ex-Dividend Date?

The ex-dividend date, or ex-date for short, is one of four stages that companies go through when they pay dividends to their shareholders. The ex-dividend date is important on the grounds that it decides if the buyer of a stock will be qualified for receive its impending dividend.

Understanding the Ex-Dividend Date

A dividend is normally a cash payment that a company pays to its shareholders as a reward for investing in its stock or equity shares. As companies produce a profit, they normally collect or save those profits in an account called retained earnings. A few companies reinvest those retained earnings back into the company, while others might take a portion of retained earnings and pay it back to shareholders through dividends.

To comprehend the ex-dividend date, we want to comprehend the stages companies go through when they pay dividends to their shareholders. Below are the four key dates during the method involved with giving a dividend.

Declaration Date

The first of these stages is the declaration date. This is the date on which the company reports that it will give a dividend later on.

Record Date

The subsequent stage is the record date, which is the point at which the company examines its current rundown of shareholders to figure out who will receive dividends. Just the people who are registered as shareholders in the company's books as of the record date will be qualified for receive dividends.

Ex-Dividend Date

The third stage is the ex-dividend date, which is the date that figures out which of these shareholders will be qualified for receive the dividend. Commonly, the ex-dividend date is set one business day before the record date. Shareholders who bought the stock on the ex-dividend date or after won't receive a dividend. Notwithstanding, shareholders who owned their shares something like one full business day before the ex-dividend date will be qualified for receive a dividend.

Payable Date

The fourth and last stage is the payable date, otherwise called the payment date. The payable date is the point at which the dividend is really paid to eligible shareholders.

Ex-Dividend Date and the Stock Price

Numerous investors need to buy their shares before the ex-dividend date to guarantee that they are eligible to receive the impending dividend. In any case, assuming you wind up buying shares and understanding that you missed the ex-dividend date, you might not have passed up a major opportunity however much you thought.

This is on the grounds that share prices generally drop by the amount of the dividend on the ex-dividend date. This checks out in light of the fact that the company's assets will before long be declining by the amount of the dividend.

Suppose a company declares a dividend equivalent to 2% of its stock price; its stock might decline by 2% on the ex-dividend date. Thusly, on the off chance that you bought the shares on or shortly after the ex-dividend date, you might have gotten a "discount" of around 2% relative to the price you would have paid shortly before the ex-dividend date. Along these lines, you might not have been any more regrettable off than the investors who purchased the stock before the ex-dividend date and received the dividend.

Since stocks for the most part decline in price on the ex-dividend date, investors who missed buying the stock before the ex-dividend date might have the option to get the stock at a discount equivalent to the dividend on or after the ex-dividend date.

Example of an Ex-Dividend Date

To represent this cycle, consider a company that declares a forthcoming dividend on Tuesday, July 30th. Assuming the record date is Thursday, Aug. 8, the ex-dividend date would be Wednesday, Aug. 7, meaning anybody who bought the stock on Aug. seventh or later wouldn't receive a dividend.

Alternately, shareholders who bought their shares on Tuesday, Aug. sixth (or prior), would be qualified for receive a dividend since it's one business day before the ex-dividend date. The payable date can differ depending on the inclinations of the company, yet will continuously be the last of the four dates. The table below features what the key dividend dates may be in our example.

Adjustment — Feb. 16, 2022: A previous variant of this article misquoted when the ex-dividend date falls relative to the record date.

Features

• The ex-dividend date or ex-date denotes the cutoff point for shareholders to be credited a pending stock dividend.
• To receive the forthcoming dividend, shareholders must have bought the stock before the ex-dividend date.
• On the ex-dividend date, stock prices commonly decline by the amount of the dividend.
• There are four dates to know with regards to companies' dividends: the declaration date, the ex-dividend date, the record date, and the payable date.