What Is The Ex-Dividend Date?
To determine whether you are entitled to the next cash or stock dividend, you need to know two important dates: the record date and the ex-dividend date (also referred to as “ex-date”). This is the day when shares are ‘reset’, meaning they no longer come with the recently declared dividend.
Ex-Dividend Date vs. Record Date
When a company declares a dividend, it sets a record date. This date is when you must be on the company's books as a shareholder to receive the dividend.
After the record date has been determined, the stock exchange (i.e. the National Association of Securities Dealers [NASD]) assigns the ex-dividend date. The ex-dividend date is normally set one business day before the record date.
In summary, the ex-dividend date is set and is based on stock exchange rules. This date determines who receives the dividend.
Note: Buyers of stock on or after this date do NOT receive it. The record date is one business day after the ex-dividend date and determines who the shareholders on the record are. They must be on the company books at this time to receive a dividend.The payable date is when they receive the dividend.
How Does The Ex-Dividend Date Work?
The ex-dividend date is crucial to shareholders because it determines whether you are paid or not. If an investor buys a stock before the ex-dividend date, then they will receive the dividend payment. If they purchase the stock on or after the ex-dividend date, then they will not receive that dividend.
Dividends take money out of the company. While they pay investors, dividends also have an impact on the company share price. This shift to share price typically occurs on the ex-dividend date.
For example, if a stock is trading at $100 and pays a quarterly dividend of $3 per share, then, the stock will open on the ex-dividend date at $97.
Ex-Dividend Date Calendar
Let’s look at a hypothetical example to better understand the dividend date structure.
On July 27, 2020, Company X declares a dividend payable on September 10, 2020 to shareholders on record (declaration date).
Company X also announces that shareholders who are on the company books on/before August 10, 2020 are entitled to the dividend (record date).
The stock ex-dividend date is one business day before the record date. On this date, stock prices typically drop, according to the paid dividend.
To determine the ex-dividend date calendar for specific companies, go to the NASDAQ website. If you have questions about specific ex-dividend dates, be sure to consult your financial advisor.
Ex-Dividend Key Takeaways
In a nutshell, if you buy a stock before the ex-dividend date, you’ll receive the next upcoming dividend payment. If you purchase the stock on or after the ex-dividend date, you won’t receive the dividend.
As the ex-dividend date approaches, the price of a stock may move up by the dollar amount of the dividend, then fall by that amount after the ex-dividend date. A stock that has “gone ex-dividend” is marked with an "x" in publications on that day.
Ask the Expert About Ex-Dividend Date
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Q: What Should I Know About Taxes and the Ex-Dividend Date?
When you buy and sell stock,pay attention to both the ex-dividend date and the record date because of their tax implications.
In general, if you buy and sell within tax-sheltered accounts like an IRA or 401k, you don’t need to worry too much about tax implications because you will pay taxes when you withdraw your money later. If you buy and sell within a Roth IRA, taxes on that money have already been paid, so you don’t need to worry.
You can get into trouble when making stock purchases in accounts that are currently taxable (e.g. brokerage account). Put another way, you don’t want to buy the tax liability. In an account like this, watch the ex-dividend date because the prices of a stock fall after this date.
For example, if you made a purchase of stock a few days before the ex-dividend date, you’d immediately see the value of your portfolio drop when the ex-dividend date hit. You’ll still receive the distribution (because you bought before the ex-dividend date), but you’ll then need to pay taxes on that distribution amount. Paying taxes on those distributions is what most short-term investors do over and over again.
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