What is XD?

XD is a symbol to indicate that a security is trading ex-dividend.

How Does XD Work?

The ex-dividend date is the day on which all shares bought and sold no longer come attached with the right to receive the most recently declared dividend. When a company declares a dividend, it sets a record date when you must be on the company's books as a shareholder to receive the dividend. Once the company sets the record date, the stock exchanges fix the ex-dividend date.

The ex-dividend date is normally two business days before the record date. If you purchase a stock on or after its ex-dividend date, you will not receive the next dividend payment. Instead, the seller gets the dividend. If you purchase before the ex-dividend date, you will get the dividend.

For example, let's say that on July 27, 2012, Company XYZ declares a dividend payable on September 10, 2012, to its shareholders. XYZ also announces that shareholders of record on the company's books on or before August 10, 2012, are entitled to the dividend. The stock would trade XD two business days before the record date. The consolidated ticker tape might show the stock as 'XYZ/XD.'

Why Does XD Matter?

In a nutshell, if you buy a stock before it goes XD, then you will receive the next upcoming dividend payment. If you purchase the stock after it goes XD, you will not receive the dividend.

With a large dividend, the price of a stock may move up by the dollar amount of the dividend as the ex-dividend date approaches and then fall by that amount after the ex-dividend date.