What is an Ex-Dividend Date
The ex-dividend date is an inflection point in trading stocks — buying a stock before the ex-dividend date means investors can get the next dividends from that stock, while buying a stock on or after the ex-dividend date means investors can’t get the next dividend payment.
The ex-dividend date is one of a handful of dividend-related dates that help investors know whether or not they’ll be eligible to receive a dividend. Dividends are income that some stocks pay to investors, usually on a scheduled basis like once a quarter or once a year (kind of like a check from grandma). For stocks that do offer dividends, buying a stock before the ex-dividend date means the investor will get the dividend, while buying on or after the ex-dividend date (aka ex-date), means the investors won’t yet officially be recorded as owners of the stock when companies check their rosters, and as a result, won’t receive the next dividend payment.
Let’s take a look at when Microsoft paid dividends to its stockholders on June 13, 2019.Here are the four dates that matter:
Source: Microsoft Press Statement, March 11, 2019. This is for illustrative purposes. There can be no guarantee or assurance that companies will declare dividends in the future or that if declared, they will remain at current levels or increase over time.
The ex-dividend date is like a conductor blowing a horn to let passengers know a train is about to leave the station...
It’s a cut off point that defines whether or not an investor buying a stock (that offers dividends) will be eligible or not to receive those dividends. Buying a stock before the ex-dividend date means the investor gets the dividends, while buying the stock on or after the ex-dividend date means the investor hasn’t purchased the stock in time to receive the next payment of dividends.
The ex-dividend date, which means trading “ex” or without a dividend, is determined by stock exchange rules and is announced in a public statement by the company.
The record date is the date on which a company checks its official list of investors to see who owns stock and is eligible for a dividend (if the company pays dividends). The ex-dividend date for stocks is usually 1 day before the record date, which gives a company time to update its books.
The US Securities and Exchange Commission (SEC) previously had a rule requiring companies declaring dividends to set the ex-dividend date two days before the dividend’s record date. The period was reduced to one business day in late 2017.
The ex-dividend date is now typically set one day before the dividend’s record date because it takes time for trades to officially settle and transfer ownership from one investor to another. This process, known as clearing, can involve electronic and or paper records. Buying a share before the ex-dividend date helps ensure that the investor will be listed as an official shareholder when the record date rolls around (the date a company references its official list of investors).
An investor must buy a stock (if it offers dividends) before the ex-dividend date so that the trade will settle in time for the investor to be listed as an owner, as of the record date. The record date is when the company references its list of shareholders to see who’s considered an official investor. It typically takes either two days (T+2) – the trade date plus two days – or (T+1), trade plus one day, for a trade to settle. An investor can only appear as an official shareholder once their trade has settled.
Investors looking to sell their shares in a particular company might choose to execute their trade on or after the ex-dividend date in order to keep their upcoming dividend, but still offload their stock.
How does that work? If an investor sells their stock on or after the ex-dividend date, they’ll still be listed as an owner on the record date, and therefore will be entitled to the next dividend. As a result, selling on the ex-dividend date or just after enables the investor to both unload their shares and retain their next dividend. This can create a trend of stocks tentatively dipping by around the value of their dividend on or just after the ex-dividend date.
Shareholders with voting rights can show up at a company’s annual general meeting, or vote proxy, to have a say in certain key decisions that affect a company, such as the dividend date. Other corporate decisions shareholders can vote on often include electing members to the board of directors and approving mergers, acquisitions, or stock splits.
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