What Is The Ex-Dividend Date?
Some stocks pay cash (or additional stock) dividends to their investors throughout the year. The ex-dividend date (also referred to as “ex-date”) is important for an investor to know because it determines if you’re entitled to a dividend.
In order to receive a dividend, you need to be the holder on record of a given stock no later than the day before its ex-dividend date. If you buy a stock on/after the ex-dividend date, you won't be entitled to receive the company's next upcoming dividend payment
The Four Important Dividend Dates
The ex-dividend date is one of four important dates in the dividend distribution process. It’s important you have an overview of all four before diving deeper into the ex-dividend date.
1. Declaration Date
The declaration date is the day a company’s board of directors announces the next dividend for shareholders. This announcement sets the dividend payment amount, the ex-dividend date, and the payable date.
2. Ex-Dividend Date
As mentioned above, the ex-dividend date is a marking point for whether or not you’re entitled to a dividend. If you buy stock prior to the ex-dividend date then you are entitled to the next dividend payment. Buyers of stock on or after this date will NOT receive the dividend.
3. Record Date
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.
4. Payable Date
The payable date is when shareholders on record receive the 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 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 based on stock exchange rules. This date determines who receives 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 next 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 stock prices. This shift in stock 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 roughly $97.Of course, the stock prices move and up and down based on other factors besides the dividends being paid. What’s important to note is that the stock prices do change based on the dividend payments.
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 or the NYSE 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
InvestingAnswers is on a mission to help consumers build and protect their wealth through education. That is why we have experts answering your pertinent questions at the end of each article.
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, tax implications aren’t major concerns 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). That’s because you will need to pay taxes on all dividends paid out for the year. In an account like this, watch the ex-dividend date because a stock's price typically falls 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.
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