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When investing in stocks, investors weigh various factors. Among these, investors may also analyze several dates related to the stock. One such date that investors always consider is a stock’s ex-dividend date.
What is the Ex-Dividend Date?
Ex-dividend dates come with ex-dividend stocks. These are stocks that trade without the value of the next dividend payment. The ex-dividend date is also known as the ex-date. A stock’s ex-dividend date comes one business day before its record date. Therefore, investors that buy a stock on its ex-dividend date or later are not eligible to receive the declared dividend.
The ex-dividend date is the last date on which investors can buy a dividend-paying stock to receive the dividend. If investors buy a stock on any date after the ex-dividend date, the stock seller will get the dividend. Even if the seller doesn’t own the stock anymore, the dividend will go to them. Companies declare the ex-dividend date in advance.
How does the Ex-Dividend Date work?
When a company declares a dividend after an accounting period, it will also establish the ex-dividend date. These dividends come from the company’s earnings due to its financial performance. The company’s board of directors will decide the amount of dividend that shareholders will receive. Once they do so, they will send out the dividend to each shareholder, usually in cash.
At the time of the dividend declaration, the board of directors will also establish the dividend record date. The record date refers to when a shareholder must be on the company’s records to receive their share of dividend payments. The record date also comes with the ex-dividend date. The ex-dividend date, therefore, is the day before the record date.
Why is the Ex-Dividend Date important?
When investors buy a stock or security with a declared dividend before the ex-dividend date, they can receive future dividends. Therefore, investors must know if they are eligible for the payment or not. Since the SEC requires shareholders to be on the company record to receive the dividend, the ex-dividend date becomes even more critical.
Investors want to know the stock’s record and ex-dividend dates to evaluate how much to pay for it. Since a stock may come with dividends, investors will be willing to pay higher for it. However, they must get the stock before the ex-dividend date. If they don’t do so before the date, they will not pay higher for the stock because there are no dividends attached.
Overall, knowing a stock’s ex-dividend date is crucial for the timing of investments for investors. If investors miss the date, they may pay higher for stocks than they are worth, which will result in losses.
Example
Apple Inc. announced its quarterly dividend of $0.205 per share. Here are the different dates associated with those dividends.
- Declaration date: 29 October 2020.
- Ex-dividend date: 06 November 2020.
- Record date: 09 November 2020.
- Payment date: 12 November 2020.
Therefore, any shareholder registered in Apple’s records as a shareholder on 06 November will receive the $0.205 dividend.
Conclusion
The ex-dividend date of the stock shows the last date before which investors will receive a dividend. After the ex-dividend date, if a shareholder sells their shares, they will get the dividends even though they don’t own the shares. A stock’s ex-dividend date is crucial for investors as it dictates how much they will pay for it.
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