Definition
The term ex-dividend date refers to the day after which a security no longer carries with it the right to a company's recently declared dividend payment. An investor that acquires a security on or after the ex-dividend date is not entitled to the payment of that dividend.
Explanation
Investors need to be aware of four important dates, especially if they are buying or holding securities that provide high dividend yields. The ex-dividend date, also known as the ex-date, is the second date in the sequence below:
Declaration Date: this is the day a company formally announces the payment of a dividend; typically referencing the record date as part of the announcement.
Ex-Dividend Date: calculated as two business days prior to the record date. An investor that acquires a security on or after this day is not entitled to the declared dividend.
Record Date: to be entitled to the payment of a dividend, the holder of a security must be listed as the official owner on this day.
Payable Date: typically referenced as part of the announcement, this is the day on which payment is made to the owner of record.
When a stock reaches its ex-dividend date, the stock symbol is usually accompanied by an "x." In theory, the price of a stock will move up as the ex-dividend date approaches and fall sharply on that day. That's because the seller of the stock remains entitled to the next dividend payment even after the sale, not the purchaser.
Example
On October 1st Company A declares a dividend payable to shareholders on November 12th. As part of that announcement, Company A states that shareholders of record on October 14th are entitled to the dividend.
Since October 14th falls on a Thursday, the ex-dividend date would be on Tuesday, October 12th; which is two business days prior to the record date. Investors purchasing shares of Company A's stock on Monday, October 11th would be entitled to the payment of the dividend, while anyone purchasing shares on October 12th would not be eligible to receive a payment.
Related Terms
The financial accounting term dividends payable is used to describe the cash owed by a company to its stockholders, based on a distribution that has been formally authorized by the company's board of directors. Dividends payable are categorized as a current liability on the company's balance sheet.
Moneyzine EditorNovember 6th, 2024
The term capital stock is used to describe the authorized and issued transferable units of ownership in a corporation. Capital stock can include both common as well as preferred securities. The value of all capital stock issued can be found on the company's balance sheet.Moneyzine EditorNovember 6th, 2024- The financial accounting term preferred stock refers to a class of equities issued by corporations that contains special preferences, or features, that are not present in common stock. Preferred stock dividends are typically paid before those of common stocks; however, they usually don't have the voting rights common shareholders enjoy.Moneyzine EditorNovember 6th, 2024
The ratio of dividends paid to common stockholders relative to market price per share is known as the dividend yield. This ratio is typically expressed in terms of a percentage.Moneyzine EditorNovember 6th, 2024
The term liquidating dividend refers to the process of providing shareholders with a partial or full distribution of their capital investment in the company. Liquidating dividends are typically paid when a company is going out of business or has sold a portion of the enterprise.Moneyzine EditorJanuary 23rd, 2024- The term scrip dividend refers to the process of providing shareholders with the choice of receiving a cash dividend, a dividend at a future point in time, or common stock. When a corporation issues a scrip dividend, they're allowing shareholders to increase the size of their holdings without incurring any fees.Moneyzine EditorSeptember 21st, 2023
