Ex-Dividend Date

Why are there so many different dates associated with dividends? Most companies that pay dividends do so every 3 months on a fixed schedule. They don’t have to do it this way, but shareholders like predictability, and companies want to keep their shareholders happy.

You might think that the only important date is when you get your dividend money, but you would do well to understand a few more dates, the most important one being the ex-dividend date.

Declaration Date. Just because a company has paid its dividend every 3 months for years, and they are highly motivated to keep the shareholders happy by continuing to pay dividends, there are no guarantees. On the declaration date, the company announces whether it will pay a dividend and whether there will be any change to the dividend amount.

Ex-Dividend Date. When buying or selling a stock around the time that the company will be paying a dividend, you may wonder who will get the dividend, the old owner or the new owner. The ex-dividend date is the first day that a stock trades without the current dividend payment. Suppose that the ex-dividend date lands on a Tuesday. Then for stock trades on Monday, the buyer will get the dividend, and for stock trades on Tuesday or later, the seller will retain the dividend. In theory, the stock price should drop by the amount of the dividend between close of trading on Monday and opening of trading on Tuesday. In practice, stock prices are not that predictable.

Record Date. The records of who owns stock in the company on this date are used to determine who gets the dividends. You might think that this would be the day before the ex-dividend date, but this isn’t the case. When you make a stock trade, the trade isn’t finalized until 3 business days later. Going back to the example where the ex-dividend date falls on a Tuesday, the last day where buyers get the dividend is Monday, but the Monday trades won’t be finalized until Thursday. So, the record date is Thursday, two business days after the ex-dividend date.

Payment Date. The payment date is the date when the company sends out the dividends, and shareholders should get their money a few days later.

While you hold a stock, the important things related to dividends are the payment amount and when you get your money. When it comes to buying or selling a dividend-paying stock, you need to pay attention to the ex-dividend date to know which dividend payments you will receive.