Ex-Dividend Date | Timing Your Dividend Stock Buys and Sells

Timing Investment Decisions Around Ex-Dividend Date

For investors seeking passive income, investing in a company that pays dividends may be an attractive option. Prospective investors pay close attention to several details when analyzing a company’s dividends, one of which is the ex-dividend date.

There are specific rules a company must follow if they intend to pay investors dividends, specifically about how they will be disbursed and to whom. That approach and the ex-dividend date are crucial facets of the process.

What Does Ex-Dividend Date Mean?

An ex-dividend is simply when a dividend-paying company’s allocations have been specified. A stock’s ex-dividend date refers to the day a stock begins trading without any ensuing dividend value.

  • Any investor who purchases the stock before the ex-dividend date is qualified and entitled to the next dividend payment.
  • Any investor who purchases the stock either on or after the ex-dividend date is not.

Important Dates for Dividend Stocks

While the ex-dividend date is important, there are several other significant dates within the distribution process:

Declaration Date

Also known as the “announcement date,” this date refers to when a dividend distribution is announced publicly by a company’s board of directors. This statement will include important details such as the dividend’s size, ex-dividend date, and payment date. The declaration date is also the last day when any holders of options can indicate whether or not they will exercise the option (also known as the expiration date).

Ex-Dividend Date

This is the day in which you can buy stock in order to get the upcoming dividend payment. Any shares owned before this date entitles you to receive the next dividend payment. Prospective investors use this date to decide if they want to receive the upcoming dividend at its full share price or if they would rather give it up for a discounted share price.

Record Date

Whenever the company checks who the shareholders of record are is referred to as the record date. This date occurs one business day after the ex-dividend date. This date is not a major influence on an investor’s final decision.

Payment Date

The payment date is just that: the date when the dividend checks are either sent or credited to their shareholder’s accounts. The payment date is known in advance, so the date has little bearing on the stock’s price.

An Example of the Ex-Dividend Date

Let’s say AZ Company announces they will pay a dividend of 56 cents per share on November 1st to shareholders of record as of November 29th. The ex-dividend date would fall on November 28th (the business day before the record date).

Ex-Dividend Date SEC Change

Although it has been a few years since the change, it should be noted that the SEC changed the ex-dividend date to one day before the date of record in September 2017. It had previously been two.

On the day after the ex-dividend date, the companies will gather the names of the investors that own shares as of the market’s opening on the ex-dividend date.

Selling on the Ex-Dividend Date

In order to receive a dividend, shareholders must hold the stock when the market opens on the ex-dividend date. They can still sell their shares on the ex-dividend date and receive the dividend.

However, any investor who buys shares on the ex-dividend date will not.

Those who sell before the ex-dividend date will not receive any dividend payments. If an investor decides to sell after the ex-dividend date, they will receive whatever the current dividend payment is, although they are not entitled to receive future payments unless they buy shares again. If they do this, it must be done before the next ex-dividend date in order to receive the payment. 

How Some Investors Track Ex-Dividend Dates to Capture Profits

Dividend capture is essentially a strategy some investors use: buy a stock before the ex-dividend date and sell it either on or right after the ex-dividend date to capture the dividend. The idea is to “capture” the dividend and sell it on or after the ex-dividend date, either at no loss or a slight gain, with the dividend kept as profit.

Some investors use tracking tools that fit within certain parameters they are looking for within a specific date range. This is an iffy strategy at best. A rule requires that stocks go down by the dividend amount on the ex-dividend date, which creates a substantial risk that the stock will fall as much as the dividend paid, or even more.

Let’s Take a Closer Look

Let’s say that a $100 stock pays investors a $2 dividend. The stock should open at $98 on its ex-dividend date. Let’s then assume the market is rising, and the stock opens at $99.20.

In this case, an investor using the dividend capture strategy can sell the stock and make a net profit of $1.20 per share.

However, the stock price could open lower, say at $96, in which case the investor would end up with a net loss of $2 per share ($96 – $100 + $2).

Although the dividend amount is fixed, the potential loss amount is not.

Bottom Line

The ex-dividend date determines who receives the upcoming dividend, which is an important date to track for dividend investors. Though some investors try their hand at the dividend capture strategy, it is a risky approach to investing as the price of the stock is automatically reduced by the upcoming dividend.

The dividend will be cheaper for those who wait until the ex-date or later to buy. You just won’t receive the next dividend, although some investors prefer the discount over receiving one dividend payment.

For any investor looking to invest in dividends, StockMarketEye has a fabulous number of tools in its portfolio tracking software to help you make proper investment decisions.

Back to top