There are two primary ways to make money through the stock market: by selling the stock for more than you paid—also known as capital gains—and by collecting a dividend. A dividend is a payment made by a company to its shareholders, most often out of the profits it generates.
For investors, dividends can be an important part of your investing strategy whether you’re reinvesting them back into a stock or using the dividends as an additional income stream. “Dividends are kind of like a bonus to investors for owning the stock. They are paid regularly, usually quarterly, so investors are consistently compensated for owning the stock, even if the stock price falls,” says Kevan Melchiorre, certified financial planner and co-founder of Tenet Wealth Partners. In order to receive dividend payments there is a key date you must know, the ex-dividend date.
What is the ex-dividend date?
The ex-dividend date determines if a shareholder will receive an upcoming dividend payment. “Shareholders who own the stock before the ex-dividend date will be paid the next dividend,” says Sabina Smailhodzic Lewis, certified financial planner and founder and financial Planner at Avant-Garde Wealth. This is because dividend payments are sent out based on who owns the shares on a specific date, known as the record date, which is typically one business day after the ex-dividend date.
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. 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.
How ex-dividend dates work
When a company announces that it will pay out a dividend, it will also announce how much will be paid to shareholders, and the date that investors must own shares to receive the dividend payment, which is known as the record date. The ex-dividend date serves as a cutoff date after which new investors to the company must wait for the next dividend.
“Existing shareholders will receive a notification from the company, while potential investors can find the information online, on popular investor information websites,” adds Smailhodzic Lewis.
- Declaration date: On this day, the company will usually issue a press release announcing the dividend amount and important dates that shareholders should be aware of.
- Ex-dividend date: This is the day after which dividend payments will no longer be paid to investors who purchase a stock.
- Record date: The dividend record date is the date which one must own shares in order to be eligible for dividend payments.
- Payment date: On this day, dividend payments are made to shareholders who held their shares prior to the ex dividend date.
- Settlement date: The settlement date is the day the shareholder officially owns the stock if you purchased shares, or the date you receive payment if you sold shares. This is typically two business days after a buy or sell order is executed.
Example
On February 1, Company A declares a dividend that will be paid to its shareholders on March 30; this is the payment date. Company A also says that shareholders who own the stock on or before February 10 will be entitled to the dividend; this is the record date. The stock will trade ex-dividend one day before the record date, which in this example would be February 9. In this case anyone who buys the stock before the ex-dividend date of February 9 will receive the March 30 dividend. Those who purchase shares on the ex-dividend date or after will have to wait until the next dividend is declared.
The takeaway
Understanding the ex-dividend date, dividend record date, and dividend payment date are important for any investor who wants to take advantage of dividend payouts as part of their strategy. “Staying mindful of the ex-dividend date whenever trading stock can be the difference between capturing the upcoming dividend income or not,” Melchiorre says.
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FAQs
The ex-dividend date is one business day before the record date when the shares begin to trade without their dividend. If you buy stocks one day or more before their ex-dividend date, you will still get the dividend. That's when a stock is said to trade cum-dividend, or with dividend.
How many days before the ex-dividend date should I buy a stock? ›
To be eligible for the dividend, you must buy the stock no later than one day before the ex-date, which would mean two business days before the date of record. If you plan to sell your stock but wish to receive the dividend, don't sell it before the ex-dividend date.
Should you buy on an ex-dividend date? ›
The ex-dividend date or "ex-date" is usually one business day before the record date. Investors who purchase a stock on its ex-dividend date or after will not receive the next dividend payment. Instead, the seller gets the dividend. Investors only get dividends if they buy the stock before the ex-dividend date.
How long do you have to hold after ex-dividend date? ›
At the most basic level, you only need to own a stock by the ex-dividend date (or deadline) in order to get the dividend. And you can sell the stock a day or two after that, once everything settles. So in theory, you only need to own the stock for a couple of days to get the dividend.
What is the ex-dividend date rule? ›
The stock price drops by the amount of the dividend on the ex-dividend date. Remember, the ex-dividend date is typically the same day as the record date. If investors want to receive a stock's dividend, they have to buy shares of stock before the ex-dividend date.
Do stocks go up or down before ex-dividend date? ›
Because investors know that they will receive a dividend if they purchase the stock before the ex-dividend date, they are willing to pay a premium. This causes the price of a stock to increase in the days leading up to the ex-dividend date.
Can you sell a stock on ex-dividend date and still get dividend? ›
The ex-dividend date is the first day of trading in which new shareholders don't have rights to the next dividend disbursem*nt. If shareholders continue to hold their stock, they may qualify for the next dividend. If shares are sold on or after the ex-dividend date, they still receive the dividend.
What are the three important dates for dividends? ›
There are four key dates to keep in mind when holding a dividend-paying stock:
- Declaration Date. The declaration date is the date on which the board of directors announces and approves the payment of a dividend. ...
- Ex-Dividend Date. ...
- Record Date. ...
- Payment Date.
The method calls for buying a stock just before the ex-dividend date to receive the dividend and then selling it once it has been paid. The purpose of the two trades is to receive the dividend instead of investing for the longer term.
Does a stock have to settle before ex-dividend date? ›
Simply put, the ex-dividend date is typically two business days before the record date. Because the ex-dividend concept already includes the settlement delay, the settlement date can happen on or after the ex-dividend date.
The ex-dividend date for stocks is usually set as the record date or one business day before if the record date is not a business day. If you purchase a stock on its ex-dividend date or after, you will not receive the next dividend payment. Instead, the seller gets the dividend.
What are the best stocks for dividends? ›
20 high-dividend stocks
| Company | Dividend Yield |
|---|
| CVR Energy Inc (CVI) | 8.97% |
| Eagle Bancorp Inc (MD) (EGBN) | 8.37% |
| Insteel Industries, Inc. (IIIN) | 8.04% |
| Alexander's Inc. (ALX) | 7.83% |
18 more rowsSep 3, 2024
Existing shareholders receive the declaration information directly from the company, usually by a notice in the mail. Investing information websites regularly publish upcoming ex-dividend dates, along with the amount of the dividend.
What is buying before ex-dividend date strategy? ›
The dividend capture strategy is a timing-oriented investment strategy involving purchasing and later selling dividend-paying stocks. The method calls for buying a stock just before the ex-dividend date to receive the dividend and then selling it once it has been paid.
Does a stock have to settle before the ex-dividend date? ›
Simply put, the ex-dividend date is typically two business days before the record date. Because the ex-dividend concept already includes the settlement delay, the settlement date can happen on or after the ex-dividend date.
When should you buy dividend stocks? ›
If you're investing a large amount, it's a good idea to find out if any dividends are coming up. If so, consider investing your money once that date has passed. This is one of the only situations when it might make sense to "time" your investment, and it only applies to large sums of money.
