Ex-dividend date

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The ex-dividend date, also known as the reinvestment date, is an investment term that describes the timing of the payment of dividends on stocks of corporations, income trusts, and other financial holdings, both publicly and privately held.

In the United States, the ex-dividend date is the first date following the declaration of a dividend on which the buyer of a stock is not entitled to receive the next dividend payment.[1]

All other things being equal, the price of a stock drops by the amount of its dividend at the start of its ex-dividend date.

Ex-dividend dates help avoid confusion about who will receive a dividend payment on a stock that is sold. The Board of Directors will decide to distribute money to shareholders in a process called "declaring a dividend". At the time that the Board declares a dividend, it will also announce both a "record date" and a "payment date" in the future. On the record date, the list of stockholders owning the stock is frozen, and that list is used to send out dividend payments on the payment date. Any changes in stock ownership after the record date is ignored when sending the dividend.

When a person buys stock on a stock exchange, it takes two business days for that trade to "settle". In other words, if a person calls his stock broker on Monday with an order sell a stock, the buyer must receive that stock on Wednesday. To avoid the delay in settling stock from creating confusion about who will get a dividend payment, stock data bases list the day that is two business days before the dividend record date as the "ex-dividend date".

A person who buys a stock before the ex-dividend date, no matter if in pre-market trading, regular trading or after-hours trading, gets the dividend.

A person who buys a stock on or after the ex-dividend-date, whether in pre-market trading, regular trading, or after-hours trading, does not get the dividend. Instead, the dividend goes to the person who had sold the stock.

References

  1. Ex-Dividend Dates:When Are You Entitled to Stock and Cash Dividends. U.S. Securities and Exchange Commission (June 21, 2004). Retrieved on August 9, 2012.
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