While most of you know what a dividend is, many are unfamiliar with an important date known as the ex-dividend date. Those who have heard the term are often confused about the meaning. Today, we are going to learn what it means and how it can affect you as a trader.
What Is an Ex-Dividend Date?
The ex-dividend is one of the most important dates to pay attention to once a company announces a dividend because that is the date that you have to own the stock before in order to be eligible to receive the dividend.
It is usually set a couple days before the date of record which is the day the company issuing the dividend takes note of all their shareholders who will receive the dividend.
Companies must follow the rules of the exchange they are being traded on when setting the record date and the payment date. On the other hand, if the company pays out the dividend in stock instead of cash, the ex-dividend date is set on the first business day once the stock has been paid out.
When Do You Qualify for An Dividend Payment?
In order to be eligible for a dividend you have to own the stock before the date of record. Once you hold it through the date of record you can sell the stock whenever you want and you will still receive the dividend. When the payment is made, you will often see the stock drop in price in the amount of the expected dividend.
It’s important to note that you have to buy the stock before the ex-dividend date because the stock has to settle before the record date and that takes 3 business days to complete.
Now that you know more about ex-dividend date and how they are paid out, you can keep what you have learned in mind when trading especially if you are looking to capture their dividend payment.
Got any questions? Let us know in the comments below!