Dividend Dates: A Beginner’s Guide

Let’s take, for example, a company called Jack Russell Terriers Inc. that trades on the Nasdaq under the truly appropriate symbol “HYPER” and that’s currently priced at $10 per share. The ex-dividend date, or ex-date, will be one business day earlier, on Monday, March 18. The ex-dividend date is the deadline or cut-off day for shareholders to qualify for the next dividend payment.

1. Options trading entails significant risk and is not appropriate for all customers.
2. Businesses that commit to dividend payments work hard to keep the money flowing.
3. Then, the ex-dividend date is set based on the rules of the stock exchange on which the issue is traded.
4. That means that if you sell a stock after the declaration of a stock dividend, you are selling your current shares plus the shares you are scheduled to receive.
5. Therefore, stock purchases after December 4 were ex-dividend (December 5 was the ex-date).

For example, if company XYZ declared a $1 dividend and you own 100 shares, you’ll get $100 on the dividend payment date. Dividends are cash payments that companies make to their shareholders. https://bigbostrade.com/ Technically, you can sell stocks on or immediately after the ex-dividend date. If you hold the shares on an ex-dividend date, you’ll be listed on the record date as well.

The payment date is the day that the dividend will be distributed to shareholders. This date is provided on the declaration date, so traders know when to expect the payment to reach their accounts. There are exceptions to these rules, including cases of special dividends, stock splits, and other distributions such as stock dividends. As an example, anytime a dividend is 25% of the stock’s value or more, the ex-date is deferred until one day after the payment date. Paying the shareholders instead of investing the profits in additional growth ultimately provides more value to the company’s owners. Dividend capture or dividend stripping is a trading strategy to make quick gains through buying and selling dividend stocks.

This scenario also needs to be considered when buying mutual funds, which pay out profits to fund shareholders. In general, we would expect that the value of a share of HYPER stock would go down by about the dividend amount ($1) when the stock goes ex-dividend. The term “about” is used loosely here because dividends are taxed, and the actual price drop may be closer to the after-tax value of the dividend. This is a bit difficult to measure, as different tax rates and rules apply to different buyers, but it would be safe to assume that it should drop about 15%, as HYPER pays a qualified dividend. You can leverage ex-dividend opportunities by understanding the key dates involved, such as the announcement, record, ex-dividend, and payment dates. Strategies like buying before the ex-dividend date or utilizing Dividend Reinvestment Plans can maximize these opportunities.

And because the transaction must clear before the record date, you usually have to initiate the purchase at least a few days before the record date. If you sell your stock even one day before the ex-dividend date, you are also selling the right to the pending dividend to the new owner. New customers need to sign up, get approved, and link their bank account.

While some companies have built a reputation for paying dividends for decades, others have had to suspend or cut dividends in times of economic uncertainty. For example, Exxon Mobil (XOM) has paid a dividend for more than 100 consecutive years. General Motors (GM) suspended its dividend payments in 2020 because of the coronavirus pandemic and didn’t resume until August 2022. It’s also important to note that dividend payments are generally not guaranteed, meaning that a company may choose to suspend or reduce its dividend payments at any time. General Motors (GM) suspended its dividend payments in 2020 because of the coronavirus pandemic and didn’t resume until August 2022. The SEC T+2 rule for the timing of the settlement of trades calls for stock transactions to settle (or be completed) no more than two days after a transaction takes place.

While a stock is ex-dividend, it is traded knowing that a pending dividend payment is not included in the sale. The owner of the stock on the day before the ex-dividend date will receive the distribution regardless of whether or not they still own the stock when it is paid. The ex-dividend date is the cutoff day to buy a stock and receive its upcoming dividend payment. If a stock is sold on or after this date, it is said to be “ex-dividend,” and the pending dividend payment will go to the seller instead of the buyer. As long as you’re on the company’s books as a shareholder on the record date, you can sell your shares that day and receive your dividend.

Stock dividends allow companies to share a portion of their profits with its investors. Dividends from stocks can be an additional source of passive income allowing individuals to further grow their finances. A dividend yield is a percentage that compares a company’s stock price to the dividend it pays. It is one of several metrics investors will use to determine if a stock is profitable. The easiest way to buy dividend stocks is by opening a brokerage account.

The Dividend Payment Date

Here’s how the record date and ex-dividend date would work in the overall dividend payout process. There are very few people in the world who would refuse money if someone offered it to them with no strings attached. Large companies with steady dividends might also offer less price appreciation than other stocks, meaning your investments may gain value more slowly than others. Dividend investors often focus on large, stable businesses that have built a track record of consistently increasing their dividends. The Dividend Aristocrats are a popular choice for many dividend investors. Similarly, for companies paying a one-off dividend, it will still send a positive signal.

Tax consequences

The dividend payment date is the date when the dividends are paid out to the shareholders. The cash reflects in the shareholder’s brokerage or checking account or when the check is received via registered mail. The declaration date is the day on which a company’s board of directors announces its next dividend payment.

Investing for Dividends

This is the date when you must be on the company’s record as a shareholder to receive the dividend payment. Once the record date is set, the ex-dividend date is also put in place according to the rules of the stock exchange on which the stock is traded. This usually means that the ex-date is one business day before the record date.

Understanding the ex-dividend date can allow investors to maximize their returns. Investors can use the Ex-Dividend Date Search tool to track stocks that are going ex-dividend during a specific date range. Ex-dividend dates are extremely important in dividend investing, because you must own a stock before its ex-dividend date in order to be eligible to receive its next dividend. Check out the below screenshot of the results for stocks going Ex-Dividend on October 30, 2018. It is standard practice for a stock’s price to decrease on the ex-dividend date by an amount roughly equal to the dividend paid. This reflects the decrease in the company’s assets resulting from the declaration of the dividend, and prevents people from “gaming” the dividend system.

Because settling trades and updating records takes time, investors will actually need to own shares at the stock market’s close two days prior to the record date to get the dividend. This means that if you are the owner of the stock when the market closes the day before the ex-dividend date, you will be locked in to receive the dividend on the previously specified payable date. “Staying mindful of the ex-dividend date whenever trading stock can be the difference between capturing the upcoming dividend income or not,” Melchiorre says.

So, stock dividends don’t usually go ex-dividend until the shares are distributed. That means that if you sell a stock after the declaration of a stock dividend, you are selling your current shares plus the shares you are scheduled to receive. But remember that not all companies distribute earnings to stockholders.

To determine who qualifies, the company figuratively circles a day on the calendar. Anyone owning shares on that day (called the record date) will receive the payment. Because it takes a few days to update ownership records, any trades happening the last few days before the date of record are ex-dividend (the previous owner gets the upcoming famous investors dividend). An investor who wishes to be entitled to the dividend does not have to wait until after the record date to sell the stock; however, the investor must hold the stock until the ex-dividend date. If the investor were to sell the stock on the ex-dividend date or afterwards, the investor would still be entitled to the dividend payment.