What is the Ex-Dividend Date?
Ex-dividend date is the date till which the investor has to complete his purchase of the underlying stock to get the eligible dividend on the date listed for dividend payment and such date is generally decided as per the rules of stock exchange which says that it should occurs one business day prior to record date.
In layman’s language, “ex-dividend date” is just an “eligibility criterion” which needs to be fulfilled by a particular stockholder in order for him or her to receive either cash dividend or stock dividend.
This dividend date is the segregation criteria for stockholders to make them eligible to receive the next cash or stock dividend. If one purchases a stock on its dividend date or after, it will not receive the next dividend payment. Instead, the seller gets the dividend. While in contrast, if one purchases before the dividend date, they will be eligible to get the next dividend as per the company announcement.
We see in the above image, Steward Financial Corp will start trading ex-dividend on July 31, 2018. The cash dividend per share of $0.03 is scheduled to be paid on 15th August 2018.
Timeline Example of Ex-Dividend Date
Let us take an ex-dividend date example to understand the concept timeline of things in a better manner.
- Suppose a company ABC makes its earnings announcement on August 1, 2017. This will be termed as the Declaration Date. On this day, it will make an announcement of paying dividends on the 31st of August, 2017. Hence, the payment date is 31 August 2017.
- The dividends will be paid to stockholders which are on company records as on 20th August 2017, which is termed as “record date”.
- However, the settlement period is for 3 days. So to be on record date by 20th August 2017, one has to buy shares 3 days before the record date. This date is termed as “cum-dividend date”. In the above example, the “cum-dividend date” is August 17th, 2017.
- Those who will buy shares on 18th August 2017 will NOT be eligible to receive cash or stock dividend on August 31st, 2017. Hence it is called the “ex-dividend date”.
Please note the following
- Declaration Date – The day the company reports their earnings; they also “declare” their cash dividend or stock dividend announcement as decided by the senior management of the company.
- Payment Date – This is the date when the company will actually make the cash dividend or stock dividend payments to their “eligible” stockholders. Declaration date is the date when a company announces about the future cash or stock dividend payments, if at all. The payment date is the date when those announced cash or stock dividends are actually paid by the company.
- Record Date – The record date is the cut-off date for shareholders to receive the next cash or stock dividend. In other words, everybody who is a “shareholder” as on “record date” is eligible to receive the next dividend by the company.
Where is the “Ex-Dividend Date”?
As we learned above, when the company makes the announcement to issue a dividend (called its declaration date), it also announces its record date (cut-off date) by which the stock holder’s name must be present on the company’s official records in order to receive the dividend. One can further infer that as soon as the record date is announced, consequently the “ex-dividend date” is automatically fixed.
It is generally two working days prior to the record date. If the purchase of the stock is made on or after its ex-dividend date, that particular stockholder is not liable to receive any dividend benefits. While, if the purchase of stock is made before the ex-dividend date, the buyer of the stock is eligible to receive the announced dividend.
To summarize the entire discussion, if you buy a stock before the ex-dividend date, then you will receive the next upcoming dividend payment. If you purchase the stock on or after this date, you will not receive the dividend.
Ex-Dividend Date for Stocks Video
This has been a guide to what is Ex-dividend date? Here we discuss the chronology of dividend dates, timelines of ex-dividend date along with examples and its significance. You may learn more about Corporate Finance from the following recommended articles –