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A dividend is the amount that a company pays to its shareholders on a regular basis. This amount typically is paid in the form of money or stocks. Since shares get traded on a regular basis, though, it’s important to know who actually gets the dividend when it is paid out – which is why it’s important to understand ex dividend dates.
What is an Ex Dividend date?
The definition of “Ex Dividend Date” refers to the date on which an investor must purchase a stock to receive a dividend payment. When a company declares that a dividend payment will happen, they also set two important dates: the date of record and the payment date. The payment date is the date the shareholder will receive the dividend payment. The date of record, however, is the important one here.
What is the Date of Record?
The date of record is the date the company sets to determine who actually receives the dividend payment. So, for example, if the company declares an upcoming dividend, and then sets the date of record for March 15, that means that anyone who holds stock in that company on March 15 will receive the dividend.
What’s the Difference – and Where Does the Ex Dividend Date Fall?
Although the date of record seems to be the most important date here, investors need to understand that, typically, a stock trade takes several business days to complete. The amount of time the trade takes to complete is set by the stock exchange, rather than the company, but is usually two business days. This means that, in order to earn that dividend, the investor in question would need to actually buy the stock on or before March 13, which is the ex dividend date.
See also: stock trading terms
How Does This Affect Investors?
As you can imagine, buying or selling a stock can be impacted by whether or not it carries the promise of an immediate dividend. The stock price often falls right on the ex dividend date, usually by the same amount as the upcoming dividend payment, because the seller doesn’t want to lose that dividend in the process of making the sale. At the same time, the buyers who purchase the stock ex dividend will not receive the upcoming dividend therefore they are able to buy the stock at a lower price that is adjusted for the lack of next dividend.
How Can an Investor Find the Ex Dividend Date?
Dates of record are announced by a company when dividends are announced. Any shareholder will be given that information. If you are a buyer, you can find dates of record, ex-dividend dates, and other information online either in the Investor Relations section of the company website or on popular finance portals that disseminate stock information.