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Understanding Ex-Dividend Dates

October 26th, 2011 Leave a comment Go to comments

When you invest to earn dividend income, you will want to know when you get paid. In most cases, companies pay on a set schedule. There is no uniformity either in how the key dates are scheduled or even how often companies pay. U.S. companies typically pay quarterly while non U.S. companies usually pay twice a year or even only once.

Three Key Dividend Dates

There are four key dates to know about as depicted in the picture below. Each of these dates has the following definitions:

Declaration Date: When a company announces the next dividend.

Ex-dividend Date: When a company declares a dividend, it sets a date when a shareholder must be registered or recorded as an owner of its stock in order to receive the dividend. On that date, the stock price is typically adjusted to account for the dividend amount.

Record Date: When a company declares a dividend, it sets a “record date” which is the date you must be a registered owner in order to receive the declared dividend.

Payment Date: The date when the payment is credited to you account.

The time between these dates can be short (days or weeks) or even many weeks. It depends upon the company. In this day of faster electronic transaction processing it hardly makes sense that these dates exist. Keep in mind that this lag between the dates was created in the past when paperwork was required and processing was slower.

Just Remember This One Thing

The key date here to remember is the Ex-dividend date. If you own the stock before the Ex-dividend date you will receive the dividend. If you buy the stock on the Ex-dividend date or after you are not entitled to the dividend. Note that you don’t even have to own the stock up to the Payment date to be entitled to the dividend.

Since the Ex-dividend date is the important one, you will find this date typically on detailed quote on financial sites. Also, if you look for dividends on a stock chart, the dividend shown occurs on the Ex-dividend date. For example, here’s the 1 year chart for ExxonMobil:

No Free Lunch

Lastly, there is no free lunch. If you buy the stock before Ex-dividend, then sell on or after the Ex-dividend you don’t get money for nothing. This is because on the Ex dividend date, the amount of the dividend is subtracted from the opening price of the stock.

For example, let’s say a stock pays a quarterly dividend of $0.25 and the current stock price is $25. On the Ex-dividend date, the stock will open at a price of $24.75.

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