Ex-Dividend
Contents
Unveiling the Concept of Ex-Dividend: A Comprehensive Guide
Understanding Ex-Dividend: What Does It Mean?
Ex-dividend refers to a stock that is traded without the value of its upcoming dividend payment. The ex-dividend date, commonly referred to as the 'ex-date,' marks the commencement of trading without the dividend's value.
Key Takeaways
- Ex-dividend signifies a company's dividend allocations.
- The ex-dividend date is when trading begins without the subsequent dividend value.
- Investors purchasing the stock after the ex-dividend date are not entitled to the next dividend payment.
- The ex-dividend date precedes the record date due to T+1 settlement of stock trades.
Delving into Ex-Dividend Mechanics
A stock trades ex-dividend on and after its ex-dividend date. Investors buying the stock on or after this date do not receive the upcoming dividend payment. The stock's price is adjusted downward by the exchange equivalent to the dividend amount to account for this.
Understanding Ex-Dividend Dates
The ex-dividend date is typically set one business day before the record date, which is established when a company's board of directors declares a dividend. The T+1 settlement of stock trades dictates that the ex-date precedes the record date. This ensures that only shareholders who own the stock before the ex-date are eligible for the dividend.
Example of Ex-Dividend
For instance, if Walmart (WMT) declared a dividend payable on Jan. 2, 2020, shareholders who purchased the stock before the ex-date of Dec. 5, 2019, were entitled to the dividend payment.
Other Considerations
Stocks generally drop by slightly less than the dividend amount on the ex-dividend date. However, the impact of small dividends on stock prices may be subtle, while larger dividends can have more noticeable effects.
Key Dividend-Related Dates
- Declaration date: The announcement date when a company's board declares a dividend.
- Record date: The date when the company determines shareholders entitled to receive the dividend.
- Payment date: The date when dividend payments are distributed to shareholders.