When you own stock, you're eligible to receive dividends — a portion of the company's earnings. You might have seen an announcement that XYZ company is raising its dividend, but what does that mean? How can you get access to the company's dividend? As an investor in that company, how can you get the greatest payout? Again, it's because of dividend dates. The first date is called "ex-dividend" or "ex-date." It's the day when holders of the stock need to know if they're going to be excluded from receiving future payments. Let's explain by taking an example. Let's say there are two investors who own shares in ABC Company. Jane owns shares directly, while Tom has them through a broker. Both own exactly one share, and both have documents proving this ownership. However, because Tom doesn't have his shares registered in his name, he isn't eligible for the upcoming ex-dividend date on August 20th for XYZ Company. Read on to learn more about ex-dividend dates and how they impact your stock portfolio:
When you own a stock, you have the potential to earn regular dividends. The company whose stock you own may pay out some of its earnings as dividends. The ex-dividend date is when the seller of a stock (the company) stops being liable for paying periodic dividends to the stock buyer. That's the investor who buys the stock, not the person who gets it through a stock split or dividend reinvestment plan. On this date, the company stops sending the dividend payment to the person who holds the stock on the dividend payment date. Instead, the company sends the payment to the person who owns the stock on the ex-dividend date.
The ex-dividend date occurs two trading days before the record date. The record date is the date the stock issuer uses to determine who will receive the next dividend payment. If you own the stock on the ex-dividend date, you're still eligible to receive the dividend payment. But if you buy the stock after the ex-dividend date, you won't receive the dividend payment. You can use this date to help determine the right time to buy or sell a stock. For example, say a company is about to announce a dividend increase. The stock price will likely go up before the ex-dividend date. You can use the ex-dividend date when your stock purchases to get the maximum benefit from the increased share price.
On the ex-dividend date, the stock's price will drop by the dividend amount. For example, if the dividend amount is $1 per share and the stock price is $100 per share, the stock price will fall to $99 per share. However, the amount you can sell the stock will remain at $100 per share. The stock price will drop by the dividend amount because the dividend amount must be removed from the company's assets. In other words, the company's net worth will be reduced by the amount of the dividend. This is because the company is paying out money from its assets. Once the company has paid out the dividend, its net worth will be reduced by that amount.
When determining your eligibility for a dividend on an ex-dividend date, you must determine if you own the stock directly or indirectly. You're eligible for the dividend payout if you own the stock directly. If you own the stock indirectly — such as through a mutual fund — you will not receive the dividend payout. People often believe that being on the ex-dividend date is the same as being on the record date. They think you must own the stock on the record date to receive the dividend on the ex-dividend date. However, that's not the case. You must own the stock on the ex-dividend date to receive the dividend payout.
Sometimes the price of a stock drops due to events unrelated to the stock's dividend payout. For example, the company might release an earnings report lower than expected. Investors may become worried about the company's future and sell the stock. There will be downward pressure on the stock's price on an ex-dividend date. You may be forced to sell the stock at a loss if you have a stop-loss order. If you own the stock directly, the loss may be minimal. But if you own the stock indirectly, you may be forced to sell your shares at a loss. This could significantly reduce your dividend payout.
- Understand how companies pay dividends. Companies can pay dividends at any time — there's no expected date. However, many companies pay dividends on a quarterly basis. You can find the dividend payment schedule on the company's website.
- Find out when the company's ex-dividend date is. Visit the company's website, and look for the "dividend" or "earnings" tab. This information is usually located near the bottom of the page.
- Once you know the ex-dividend date, you can determine if the stock will be a good investment. If the stock's price is higher than the dividend amount by a few percentage points, it's a good investment. If the stock's price is lower than the dividend amount by a few percentage points, it's a bad investment.
Ex-dividend dates are important dates on the stock trading calendar. You can use the information above to determine if the stock is a good investment. If the stock's price is higher than the dividend amount by a few percentage points, it's a good investment. Once you own the stock, you'll receive the dividend payout. And you'll be able to sell the stock at the same price you purchased it. On the other hand, if the stock's price is lower than the dividend amount by a few percentage points, it's a bad investment. You should avoid this stock and look for better investment opportunities. Now that you know how and when ex-dividend dates occur, you can put that knowledge to good use. You can use this information to make more informed investing decisions.
All investors would love to have stocks that increase in value every year. While that does happen from time to time, it's not a given. In fact, most stocks either stay about the same or decrease in value. To increase your chances of success as an investor, you need to be aware of events like ex-dividend dates. When you know what to expect, you can better prepare for stock price movements. You can also use this information to make more informed investing decisions. Ex-dividend dates are important dates on the stock trading calendar. When you know when they occur, you can better prepare for stock price movements. We hope that this article has cleared all your doubts regarding the ex-dividend date and that you will be able to benefit from this information in the future in the financial markets.