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 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 that Steward Financial Corp will start trading ex-dividend on July 31, 2018. The cash dividend per shareDividend Per ShareDividends per share are calculated by dividing the total amount of dividends paid out by the company over a year by the total number of average shares held. of $0.03 is scheduled to be paid on August 15, 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 made an earnings announcement on August 1, 2017. It will be termed as the Declaration Date. On this day, it will announce paying dividends on August 31, 2017. Hence, the payment date is August 31, 2017.
- The dividends will be paid to stockholders who are on company records as on August 20, 2017, which is termed as “record date.”
- However, the settlement period is for 3 days. So to be on record date by August 20, 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 17, 2017.
- Those who will buy shares on August 18, 2017, will NOT be eligible to receive cash or stock dividend on August 31, 2017. Hence it is called the “ex-dividend date.”
Please note the following.
- Declaration Date – The day the company reports its earnings, they also “declare” their 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. or stock dividend announcement as decided by the senior management of the company.
- Payment Date – This is the date when the company will 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 the company pays those announced cash or stock dividend.
- 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 announces 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 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 before the record date. If the purchase of the stock is made on or after its ex-dividend date, that particular stockholderStockholderA stockholder is a person, company, or institution who owns one or more shares of a company. They are the company's owners, but their liability is limited to the value of their shares. 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 article 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 –