Owning dividend stocks can be a great way for investors to easily generate passive income over the long-term, but dividend schedules take on extra importance when it comes to short-term holdings and trades. If you're interested in buying a stock to receive its next dividend or want to make sure you're eligible for a payout before selling shares, it's crucial to know the stock's ex-dividend date.
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Dividend Payments
The distribution of a company's profits to its shareholders. Dividends are usually paid in cash but sometimes in company stock, as well.
Understanding ex-dividend dates
Understanding ex-dividend dates
An ex-dividend date is the cutoff period that determines whether a shareholder will receive a dividend payment for stock they own. If you own the stock at the end of the trading day before the ex-dividend date, you will receive its next payout. On the other hand, if you buy a stock on its ex-dividend date, the person who owned the stock at the end of the previous trading day will be the one who receives the payout.
How do ex-dividend dates work?
How do ex-dividend dates work?
When announcing an upcoming dividend payout, a company typically states that it will make a payment to shareholders of record as of a certain date. The ex-dividend date occurs one trading day before the record date. But buying a stock on its ex-dividend date will not make you a shareholder of record in time to qualify for the upcoming payout.
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.
For example, if a company announces it will pay a dividend on Sept. 1 to shareholders of record as of Aug. 25, the ex-dividend date for the stock would take place on Aug. 24. To receive the dividend payment, it would be necessary to own shares when the stock market closed on August 23 -- one trading day before the ex-dividend date.
How do ex-dividend dates impact stock prices?
How do ex-dividend dates impact stock prices?
As a stock approaches its ex-dividend date, investors may be incentivized to purchase the stock so that they will be shareholders of record and eligible to receive the upcoming payout. Investors buying the stock to qualify for the dividend can have the effect of pushing the company's share price up.
Alternatively, it's not unusual for a stock to fall after its ex-dividend date. Once the ex-dividend date has been reached, an investor holding a stock will be considered a shareholder of record and be locked in to receive the upcoming dividend payment even if they sell the stock. With the dividend already secured, investors may have less reason to hold on to the stock -- and an uptick in selling can push its share price lower.
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An ex-dividend date in action
An ex-dividend date in action
In February 2023, beverage giant Coca-Cola (KO -0.19%) announced that it was raising its quarterly dividend to $0.46 per share -- representing a 4.6% increase from its previous quarterly dividend payout of $0.44 per share. With the announcement, the company stated that the new quarterly dividend would be paid on April 3 to shareholders of record on March 17. The company's ex-dividend date for the period was March 16.
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Fiscal Quarter
In the financial world, a quarter refers to a three-month period used for reporting and recording financial performance, typically representing one-fourth of a company's fiscal year.
Investors who owned Coca-Cola stock immediately preceding the ex-dividend date received a payment of $0.46 for each share they held, and the payout was distributed on April 3. On the other hand, an investor who purchased stock in the company on or after March 16 would not have been considered a shareholder of record in time to receive the dividend for the quarter. But if the investor held on to that stock until the company's next ex-dividend date, they would be a shareholder of record eligible to receive the next quarterly payout and then receive a distribution on the payable date.
Keith Noonan has no position in any of the stocks mentioned. The Motley Fool recommends the following options: long January 2024 $47.50 calls on Coca-Cola. The Motley Fool has a disclosure policy.
FAQs
The ex-dividend date is the first day a stock trades without the most recent dividend being factored into the share price. In other words, if you buy shares on or after this date, you will not get the next dividend the company is scheduled to pay.
Is it better to buy before or after the ex-dividend date? ›
The Bottom Line. In order to receive a dividend, you must purchase a security before the ex-dividend date. On May 28, 2024, the ex-dividend date became the same as the date of record with the move to t+1 settlement. A security tends to drop by the the dividend amount on the ex-dividend date.
What are the rules for 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.
What is the ex-dividend date strategy? ›
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. If you buy on the ex-dividend date or later, you won't get the dividend. The ex-dividend date is in place to allow pending stock trades to settle.
Will I get dividend if I buy one day before my ex-date? ›
As noted above, the ex-date or ex-dividend date marks the cutoff point for a pending stock dividend. Some trading platforms, market data, and news services might add an XD modifier to the ticker symbol to show it is trading ex-dividend. If you buy a stock one day before the ex-dividend, you will get the dividend.
Can I sell on an 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. However, 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 will still receive the dividend.
Why should you look at the ex-dividend date? ›
That's because if an investor buys the stock on or after the ex-dividend date, the investor does not receive the dividend. So, an investor must own the stock before the ex-dividend date.
Do stocks rise before the ex-dividend date? ›
Because investors know they will receive a dividend if they purchase a stock before its ex-dividend date, they are often willing to buy it at a premium. This often causes the price of a stock to increase in the days leading up to its ex-dividend date.
What are the three important dates for dividends? ›
When it comes to investing for dividends, there are three key dates that everyone should memorize. The three dates are the date of declaration, date of record, and date of payment.
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.
As some stocks do show a tendency to trade higher into the ex-dividend date, it can be possible to buy the shares ahead of time (sometimes even 61-plus days ahead, thereby triggering qualified dividend eligibility) and reap outsized returns by selling the stock on or before the ex-dividend date.
What happens to puts on ex-dividend date? ›
When the underlying stock goes ex-dividend, call options will decline and put options will increase in value as the stock price reflects the dividend to be paid.
Can you sell pre-market on an ex-dividend date? ›
Yes, you can sell anytime on or after the ex-dividend date and still be eligible for the dividend. All investors who owned stock by the end of the trading session the day before the ex-dividend date will receive the payout.
How much will the stock price decrease after the ex-dividend date? ›
After a stock goes ex-dividend, the share price typically drops by the amount of the dividend paid to reflect the fact that new shareholders are not entitled to that payment. Dividends paid out as stock instead of cash can dilute earnings, which can also have a negative impact on share prices in the short term.
Why am I not getting dividends in my bank account? ›
If you have verified and updated your bank account details but still haven't received the dividend, consider contacting the registrar and transfer agent of the company. The registrar and transfer agent can provide insights into any potential issues or discrepancies regarding the dividend payment.
Is it better to sell stock before or after a dividend? ›
For most people, it is not rational to time delay their share sale to capture a dividend. There are some minor tax consideration, but these will not be material for most people with relatively small shareholdings. Bottom line – if you want to sell your shares, sell them!
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.
How long to hold stock 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.
When should you invest in dividend stocks? ›
No matter what stage of life you're in, dividend-paying stocks can be a great way to supplement your income and improve your portfolio's growth potential. Just be sure you research the companies' overall financial health, not just their dividend rates, before investing.
