Ex-Dividend

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Ex-Dividend

Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader. Besides his extensive derivative trading expertise, Adam is an expert in economics and behavioral finance. Adam received his master’s in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology. He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses. He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem.

Michael Boyle is an experienced financial professional with more than 10 years working with financial planning, derivatives, equities, fixed income, project management, and analytics.

Katrina Ávila Munichiello is an experienced editor, writer, fact-checker, and proofreader with more than fourteen years of experience working with print and online publications. In 2011, she became editor of World Tea News, a weekly newsletter for the U.S. tea trade. In 2013, she was hired as senior editor to assist in the transformation of Tea Magazine from a small quarterly publication to a nationally distributed monthly magazine. Katrina also served as a copy editor at Cloth, Paper, Scissors and as a proofreader for Applewood Books. Since 2015 she has worked as a fact-checker for America’s Test Kitchen’s Cook’s Illustrated and Cook’s Country magazines. She has published articles in The Boston Globe, Yankee Magazine, and more. In 2011, she published her first book, A Tea Reader: Living Life One Cup at a Time (Tuttle). Before working as an editor, she earned a Master of Public Health degree in health services and worked in non-profit administration.

What Is Ex-Dividend?

Ex-dividend describes a stock that is trading without the value of the next dividend payment. The ex-dividend date or "ex-date" is the day the stock starts trading without the value of its next dividend payment.

Typically, the ex-dividend date for a stock is one business day before the record date, meaning that an investor who buys the stock on its ex-dividend date or later will not be eligible to receive the declared dividend. Rather, the dividend payment is made to whoever owned the stock the day before the ex-dividend date.

Key Takeaways

  • Ex-dividend is when a company’s dividend allocations have been specified.
  • The ex-dividend date of a stock is the day on which the stock begins trading without the subsequent dividend value.
  • Investors who purchased the stock before the ex-dividend date are entitled to the next dividend payment while those who purchased the stock on the ex-dividend date, or after, are not.
  • The ex-dividend date occurs before the record date because a stock trade is settled "T+1" meaning that the record of that transaction isn’t settled for one business day.

Understanding Ex-Dividend

A stock trades ex-dividend on and after the ex-dividend date (ex-date). If a trader purchases a stock on its ex-dividend date https://mlm-4pro.com/%d0%b3%d0%bb%d0%b8%d0%b7%d0%b5-%d0%ba%d0%b0%d0%ba-%d0%bf%d0%be%d0%b2%d0%bb%d0%b8%d1%8f%d0%b5%d1%82-%d1%82%d0%be%d0%ba%d0%b5%d0%bd-glize-%d0%bd%d0%b0-%d0%bf%d1%80%d0%be%d0%b5%d0%ba%d1%82-umi/ or after, they will not receive the next dividend payment. Since buyers aren’t entitled to the next dividend payment on the ex-date, the stock will be adjusted lower by the amount of dividend by the exchange.

When a company decides to declare a dividend, its board of directors establishes a record date. This is the date when a person must be on the company’s record as a shareholder to receive the dividend payment. Once the record date is set, the ex-dividend date is also set according to the rules of the stock exchange on which the stock is traded. This usually means that the ex-date is one business day before the record date. For example, if a company declared a dividend on March 3 with a record date on Monday, April 11, the ex-date would be Friday, April 8, because that is one business day before the record date.

The ex-date occurs before the record date because of the way stock trades are settled. When a trade occurs, the record of that transaction isn’t settled for one business day. This is known as the "T+1" settlement. Thus, if an investor owned the stock on Thursday, April 7 but sold the stock on Friday, April 8, they would still be the shareholder of record on Monday, April 11, because the trade hasn’t fully settled. However, if the investor had sold the stock on Thursday, April 7, then the trade would have settled on Friday, April 8, which is before the record date of Monday, April 11, and the new buyer would be entitled to the dividend.

Investors need to buy a dividend-paying stock at least one day before the record date since trades take a day to settle. If your investing strategy is focused on income, knowing when the ex-date occurs will help you plan your trade entries. However, because the price of the stock drops by about the same value as the dividend, buying a stock right before the ex-date shouldn’t result in any profits. The same happens with investors buying on the ex-date or after getting a "discount" for the dividend they will not receive.

Example of Ex-Dividend

For example, Walmart (WMT) paid $0.53 per share dividend on Jan. 2, 2020. The payment went to shareholders who had purchased Walmart stock prior to the ex-date of Dec. 5, 2019. The company had previously declared the dividend on Feb. 19, 2019, and the record date was set as Dec. 6, 2019. Only shareholders who had purchased Walmart stock prior to the ex-date were entitled to the cash payment.

Other Considerations

On average, a stock can be expected to drop by a little less than the dividend amount. Given that stock prices move on a daily basis, the fluctuation caused by small dividends may be difficult to detect. The effect on stocks from larger dividend payments can be easier to observe.

If a company issues a dividend in stock instead of cash (or the cash dividend is 25% or more of the value of the stock), the ex-dividend date rules are slightly different. With a stock dividend, or large cash dividend, the ex-dividend date is set on the first business day after the dividend is paid.  

Key Dividend-Related Dates

The ex-dividend date is surrounded by other important dates in the dividend distribution process.

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