Ex-Dividend Date: What Investors Need to Know

Investing in dividend-paying stocks can make sense if you’re interested in creating current income or using dividends to buy more shares. It’s important to know the ex-dividend date before you invest to ensure that you’ll receive a dividend payment. In simple terms, the ex-dividend date marks the end of a cutoff period in which you can purchase a stock to receive its next dividend payment. This is different from the record date. Being aware of these dates matters for including dividend stocks in your investment plan.

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Ex-Dividend Date, Definition

The ex-dividend date for a stock determines who receives an upcoming dividend payment. If a stock is sold on the ex-dividend date, also referred to as the ex-date, any pending dividend payment would go to the seller versus the buyer. This rule applies even though the seller no longer owns the stock.

Here’s another way to think of it. The ex-dividend date is the date that a stock begins trading absent of the value of its next dividend payout. Stocks that are sold on or after this date are considered to be ex-dividend. So an investor who buys the stock on the ex-date or after wouldn’t be able to receive any upcoming dividend.

Companies understand that it’s important to be clear about who receives a dividend payment. For that reason, it’s not uncommon for companies that pay a dividend to notify investors in advance of the next ex-dividend date.

How Ex-Dividend Date Works

Dividends represent a percentage of profits paid out to shareholders. If a company anticipates a net profit, the board of directors can opt to pay a dividend to shareholders. This is where the ex-dividend date, along with several other key dates, comes into play. Prior to the ex-date, the company will first announce that a dividend payout is upcoming. The date that this happens is sometimes referred to as the dividend declaration date. This announcement may also mention the ex-dividend date to allow investors time to prepare.

Before the ex-date itself, however, there’s another date to observe. This is the record date or date of record. This marks the date that you must be on the company’s books as a shareholder in order to receive a dividend payment. If you’re not a shareholder on the company’s record date then you won’t benefit from any upcoming dividend payment.

Typically, the ex-dividend date comes one business date before the record date or date of record. So to distill it down you need to buy shares of a dividend stock prior to the ex-date in order to be on the books by the record date to get the payment. The date you receive dividend distributions is simply known as the payment date.

Why Do Companies Use Ex-Dividend Date?

You may be wondering why it’s necessary to have so many different dates surrounding dividend payouts. The answer is timing. It takes time for companies to properly record the sale of shares. And it also takes time – usually one business day – for trades of dividend-paying stocks to settle.

Announcing an ex-date, record date and dividend payout date can help the company avoid any sticky issues about who owns which shares when the time comes to pay dividends. And it’s also helpful for investors who are interested in leveraging dividend stocks in their portfolios.

Again, in order for you to benefit from a dividend payout, you’d need to purchase shares at least a full day before the date of record to allow time for the trade to settle. Say, for example, that a stock sets its ex-dividend date for June 1. The date of record is June 2. In order to qualify for a payout, you would have to have owned shares of the stock prior to June 1.