What Is an Ex-Dividend Date? | The Motley Fool (2024)

FAQs

What Is an Ex-Dividend Date? | The Motley Fool? ›

An ex-dividend date is the cutoff period that determines whether a shareholder will receive a dividend payment for stock they own. If you own the stock at the end of the trading day before the ex-dividend date, you will receive its next payout.

Traditionally, long call options involving a cash dividend would commonly (but not exclusively) be exercised on the day before the stock's ex-dividend date. That's because if an investor buys the stock on or after the ex-dividend date, the investor does not receive the dividend.

The ex-dividend date or "ex-date" is usually one business day before the record date. Investors who purchase a stock on its ex-dividend date or after will not receive the next dividend payment. Instead, the seller gets the dividend. Investors only get dividends if they buy the stock before the ex-dividend date.

The ex-dividend date is the first day the stock trades without its dividend, thus ex-dividend. If you want to get the dividend payment, you need to own the stock by this day. That means you have to buy before the end of the day before the ex-dividend date to get the next dividend. In other words, it's the cut-off date.

As noted above, the ex-date or ex-dividend date marks the cutoff point for a pending stock dividend. Some trading platforms, market data, and news services might add an XD modifier to the ticker symbol to show it is trading ex-dividend. If you buy a stock one day before the ex-dividend, you will get the dividend.

After a stock goes ex-dividend, the share price typically drops by the amount of the dividend paid to reflect the fact that new shareholders are not entitled to that payment.

Another important note to consider: as long as you purchase a stock prior to the ex-dividend date, you can then sell the stock any time on or after the ex-dividend date and still receive the dividend. A common misconception is that investors need to hold the stock through the record date or pay date.

The Ex-dividend price

The prices of the shares normally see a rise when the company is about to announce the dividends. Once the dividends are distributed, the share price plummets immediately. In many cases, this fall in the share price is almost equal to the dividend that has been announced.

Can I sell shares on ex-date? Yes, as an investor, you can sell your shares on the ex-dividend date and still get the company's dividend.

However, to qualify for bonus shares, the company stocks must be bought before the ex-date. Any stocks bought on the ex-date shall not be eligible for an issue of bonus shares as the ownership of the stocks cannot be gained by the investor before the record date.

Is it better to sell stock before or after a dividend? ›

For most people, it is not rational to time delay their share sale to capture a dividend. There are some minor tax consideration, but these will not be material for most people with relatively small shareholdings. Bottom line – if you want to sell your shares, sell them!

The ex-dividend date is generally set two business days before the record date record date. It is a general rule that you must hold the stocks of the company before the ex-dividend date to be eligible for receiving the dividend amount.

One of the most common and enduring misconceptions about investing is that dividends are effectively free money. But it's a fallacy, sometimes called the free dividend fallacy.

The day before the ex-dividend date is the last day to buy a stock and be eligible to receive the dividend payment. The ex-date is also the day when the stock price often drops in accordance with the declared dividend amount. Traders must purchase the stock prior to this critical day.

“Dividend capture strategy” returns are the trading technique of buying a stock just before the dividend is paid, holding it just long enough to collect the dividend, then selling it. If you can sell it for as much as you paid, you have “captured” the dividend at no cost, other than the transaction costs.

It represents the date on which a stock begins trading without the value of its upcoming dividend payment. Investors who purchase the stock before the ex-dividend date are entitled to receive the dividend, while those who buy on or after the ex-date will not receive the payout.

On the ex-dividend date, the stock price, all else being equal, should drop by $0.075. 5 Put options will increase slightly in value, and call options will slightly decrease. Yet, some stocks can easily move 1 percent or more in a day with no news or events at all just due to trading activity.

When it comes to investing for dividends, there are three key dates that everyone should memorize. The three dates are the date of declaration, date of record, and date of payment.