Ex-Dividend Date Meaning
An ex-dividend date is one of the four important dividend dates, usually set one business day before the record date. It is a deadline; shareholders need to buy the stocks before this date to become eligible for the upcoming dividend payout. It is also called the ex-date.
The documentation pertaining to buying and selling of shares takes place during the period between the ex-date and the record date. Therefore, any transaction accomplished after the ex-date doesn’t deprive the buyer of the immediate dividend Dividend Dividends refer to the portion of business earnings paid to the shareholders as gratitude for investing in the company’s equity.payment.
Table of contents
- An ex-dividend date is a cut-off date for buying stocks from a company and claiming the next dividend payout.
- The share price declines on the ex-date since the dividend payment amount is deducted from the original stock value. This way, a fair value is offered to new investors.
- The US Securities and Exchange Commission (SEC) enforces the rule of T+1 for determining the ex-date—which occurs one business day prior to the record date.
How do Ex-Dividend Dates Work?
The ex-dividend date is just an eligibility criterion—stockholders need to procure shares by this date—to receive upcoming cash or stock dividend. If investors fail to purchase equityEquityEquity refers to investor’s ownership of a company representing the amount they would receive after liquidating assets and paying off the liabilities and debts. It is the difference between the assets and liabilities shown on a company's balance sheet. before the ex-date, they cannot claim the next dividend payment. When that happens, the dividend is credited to the seller.
The chronology of the four dividend dates set forth by a company is as follows:
- The firm officially declares the dividendDeclares The DividendDividend declared is that portion of profits earned that the company’s board of directors decides to pay off as dividends to the shareholders of such company in return to the investment done by the shareholders through the purchase of the company’s securities. on the declaration date.
- The payment date is disclosed—the date on which the dividend will be distributed.
- The Board of DirectorsBoard Of DirectorsBoard of Directors (BOD) refers to a corporate body comprising a group of elected people who represent the interest of a company’s stockholders. The board forms the top layer of the hierarchy and focuses on ensuring that the company efficiently achieves its goals. (BOD) ascertains the record date—it confirms the list of shareholdersShareholdersA shareholder is an individual or an institution that owns one or more shares of stock in a public or a private corporation and, therefore, are the legal owners of the company. The ownership percentage depends on the number of shares they hold against the company's total shares. in the company’s books.
- The ex-dividend date is determined automatically—it is one business day prior to the record date.
On the ex-dividend date, the stock price decreases to adjust the dividend payment amount—to represent the fair valuation of a company’s equity—in front of new investors. Therefore, if shareholders sell their shares on or after the ex-date, they will still be liable to get the recent dividend payout.
Video Explanation of Ex Dividend Date for Stocks
Other Important Dividend Dates
In addition to the ex-date, the following are three other crucial dividend dates:
- Dividend Declaration Date: The dividend announcement is made on the day the company reports its earningsEarningsEarnings are usually defined as the net income of the company obtained after reducing the cost of sales, operating expenses, interest, and taxes from all the sales revenue for a specific time period. In the case of an individual, it comprises wages or salaries or other payments.. On this date, the company’s senior management declares the stock or cash dividendCash DividendCash dividend is that portion of profit which is declared by the board of directors to be paid as dividends to the shareholders of the company in return to their investments done in the company. Such a dividend payment liability is then discharged by paying cash or through bank transfer. payout.
- Dividend Record Date: As the name suggests, the record date is the day the company lists out the names of shareholders, who are eligible to receive the next dividend in the company’s books.
- Dividend Payment Date: It is the date on which the company disburses cash or stock dividend payments to their “eligible” stockholders—as announced on the declaration date.
Let us assume, A to Z Ltd. announced the payment of dividends to its shareholders on January 05, 2022. Further, the board of directors confirmed February 21, 2022, as the record date—to enter shareholders’ names in the company’s books for dividend payment. Also, April 11, 2022, is the dividend payment date. What will be the ex-dividend date?
The ex-date will be one business day ahead of the record date. Since the record date is Monday, February 21, 2022, the ex-dividend date will be Friday, February 18, 2022. In 2022, February 19 and 20 fall on Saturday and Sunday, i.e., weekends.
Ex-dividend Date Calendar
A sample of the dividend calendar of some top companies is given below:
|Indicated Annual Dividend
|Allegiance Bancshares, Inc.
|Bank of Hawaii Corporation
|DuPont de Nemours, Inc.
|Peoples Financial Services Corp.
|Pioneer Natural Resources Company
Ex-Dividend Date Vs. Record Date
An ex-date is a cut-off date for an investor to purchase company shares and receive an upcoming dividend. On the contrary, the record date is the final date for documenting the names of current shareholders—those eligible for receiving recent dividends.
The US Securities and Exchange Commission (SEC) enforces the rule of T+1 for determining the ex-date. According to this rule, a transaction takes one business day to be shown on records. Therefore, the ex-date precedes the record date by one business day. The record date, on the other hand, is decided by a company’s Board of Directors.
Frequently Asked Questions (FAQs)
An ex-date is a deadline issued by a company. Before this date, the buyer can purchase shares and receive the upcoming dividend payout.
The company e-mails its current shareholders to acknowledge dividend payments and relevant dates. This includes the ex-date. Alternatively, the ex-date can be determined from the record date. The ex-date will be one business day prior to the record date. Also, various websites enlist the dividend information of the prominent companies in their dividend calendars.
The stock price goes down on the ex-date since the company’s dividend payment per share is deducted from the share value to ensure fair valuation of the stocks for new investors.
This article has been a guide to Ex-Dividend date for stocks & its Meaning. We explain the differences between ex-dividend date vs record date, its calendar, & examples.. You may learn more about Corporate Finance from the following articles –