Ex-dividend date

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The ex-dividend date, also known as the reinvestment date, is a finance or investment term related to the payment of dividends.

Many publicly-traded companies pay dividends to their stockholders. The question of who should be paid dividends becomes complex, as these companies are continually being traded and the composition of their shareholders therefore changes each day. In order to settle this question, companies designate a date, known as the record date. Dividends are paid to the list of shareholders who hold stock on the record date. The process is further complicated by the fact that it takes time for a stock purchase to "clear" or "settle". In order to allow time for this processing, stock exchanges set a date — generally two business days prior to the record date — known as the ex-dividend date. Someone who purchases the stock on or after the ex-dividend date will not receive the dividend, as the purchase will not "settle" by the record date, and therefore the buyer will not be on the list of shareholders to which the company pays its dividends.

Note that dividends are not always paid on the record date. Dividend payment is made on a separate date known as the due date.

After the close on the day before the ex-dividend date and before the market opens on the ex-dividend date, all open good-until-canceled limit, stop, and stop limit orders are automatically reduced by the amount of the dividend, except for orders that the customer indicated "Do Not Reduce." This is done because the dividend payout will decrease the value of the company, as it comes directly from the company's reserves.

Calculating the exact ex-dividend date can be important if the dividend is big, and the stock has been sold on or near the ex-dividend date. As of July 2005, the United States has three days of settlement for stock trades. Shortening the settlement period further to one day has been proposed, however, no formal action has been taken. So the ex-dividend date is normally two business days (3 minus 1) before the record date. Business days are defined by when banks are open in New York City, not by when the stock markets are open. Thus Columbus Day and Veterans Day are business days for the stock markets, but not for calculating an ex-dividend date. If the record date isn't a business day, then you count back from the most recent business day instead of the actual record date. For instance, if the record date is Sunday, then the ex-dividend date is the preceding Wednesday, not Thursday — assuming no holidays.

If a corporation is distributing something other than a cash dividend, such as rights or warrants, then an ex-dividend date can be called an ex rights date, or ex warrants date, etc.

The key date to remember for dividend-paying stocks, funds, or securities is the ex-dividend date.

The key date to remember for dividend-paying stocks is the ex-dividend date. The Record Date, or Date of Record determines the Ex-dividend date, when you must own the stock.

In order for you to receive the upcoming dividend you must already own or you must purchase the stock prior to the ex-dividend date.

It is important to know when you buy or sell stock; there is a three-day settlement (three stock trading days) on all buy or sell orders.

Here is an example: The ex-dividend date is two stock business days prior to the record date. To be a stockholder on the Record Date you must purchase the stock before the ex-dividend date. The latest date you can buy the stock to be a stockholder on record and be entitled to the dividend would be one day prior to the ex-dividend date to allow for the three stock trading day settlement of the stock purchase. If you purchase the stock the day before the ex-dividend date you would be a stockholder on the record date and would be entitled to receive the dividend payment.

You must be a stockholder on the record date to receive the dividend payment.

You do not have to sell the stock after the record date to be entitled to the dividend. However, you must hold and sell your stock on the ex-dividend date or after to be entitled to the dividend payment. In this example, assuming that you purchased the stock one day before the ex-dividend date, you would be a stockholder on the record date. If you sell the stock on the ex-dividend date, the buyer of your stock would be a stockholder one day after the record date given the three stock business trading day settlement. The person that bought your stock would not be entitled to receive the dividend.

You must only own the stock one day to be entitled to receive the dividend payment.

If you buy before the ex-dividend date, and sell on the ex-dividend date or after, you receive the dividend payment.

Like any trading system, overall market sentiment and momentum is key. One advantage is that dividend paying stocks do have a tendency to be much more stable and predictable and have the tendency to appreciate in price due to the dividend payment.

Here are some helpful links to Ex-dividend.com which also explain Dividend Capture: http://ex-dividend.com/exexample.html

And Ex-dividend Date: http://ex-dividend.com/howitworks.html

Special or Significant Dividend Payments.

The amount of the Dividend is declared Special or Significant in relation to the stock price. For this reason the ex-dividend date is set one stock trading day after the payment date. The stock will trade on an ex-distribution basis, adjusted for the amount of the dividend paid one trading day after the payment date. The determining factor for a Special or Significant Dividend is usually when the dividend is 20% or greater in relation to the underlying price of the stock/security.

To be entitled to a Special or Significant Dividend you need to be a stockholder on the Record Date. To be a stockholder on the Record Date your purchase would have needed to be made a minimum of three stock trading days prior to the Date of Record or Record Date.

In the case of Special or Significant Dividends, the stock trades without the dividend from the Record Date, thru the Payment Date, then adjust for the dividend paid and starts trading on an ex-distribution basis one stock trading day after the Payment Date. To be entitled to receive the dividend, it is required that you be a stockholder on the Record Date and hold your stock thru the Payment Date in order to receive the dividend. When a Special or Significant Dividend is being paid selling your stock between the Record Date and Payment Date relinquishes your right to the dividend.

The earliest you can sell your stock and still be entitled to the Special or Significant Dividend is one day after the Payment Date, or the date the stock begins trading on an ex-distribution basis.

[edit] External links

• Ex-dividend.com
• SEC page on Ex-Dividend Date
• NASD (Nasdaq) document on ex-dividend dates