You already know that shareholders of a company receive dividends at frequent intervals. A company distributes some of its profit to its existing shareholders through dividends.
Usually, companies check the list of current/existing shareholders on the record date, the deadline for distributing dividends. Besides the record date, one should also be familiar with the ex-dividend date. Continue reading to understand what is the ex-dividend date.
What is the Ex-Dividend Date?
You already know that companies set a record date for distributing dividends. A company considers eligible shareholders for receiving dividends based on the record date. The ex-dividend date occurs when a stock does not carry the value for the upcoming dividend. This date is usually two days before the record date.
How the Ex-Dividend Date Works
Now that you understand what the ex-dividend date is, let us see how it works. Here’s how it works:
- A corporate entity announces the dividend payment to existing shareholders. It also announces the dividend amount beforehand.
- The respective stock exchange usually sets the record and ex-dividend date. The stock trades on the exchange without dividends on this date. It means you will not be eligible for dividends upon purchasing shares on or after the date.
- The company determines the eligible shareholders on the record date.
- The company distributes dividends to eligible shareholders after the record date.
Types of Dates for Dividend Payment
There are numerous important dates associated with dividend stocks. One must be familiar with the dates associated with stock dividends. It all starts with the announcement date. It is the date when a company announces dividend payments for shareholders. The company announces the dividend amount on this date. The dividend amount can be expressed in rupee or percentage.
The company distributing dividends also sets a record date. It is the date when the company determines the shareholders’ eligibility for dividends. Investors who aren’t on the shareholders’ list of the company on the record date will not receive dividends. Investors purchasing shares on the record date will not be receiving dividends.
The ex-dividend date usually occurs two days before the record date. You must purchase shares of the company before this date to receive dividends. Purchasing shares on or after this date will not make you an eligible shareholder for dividend payment on the record date.
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Investors often wait for the payment date to receive dividends. It is the date when the company makes the dividend payments to eligible shareholders. The payment date can be set within a month from the announcement date. Companies are asked to pay within 30 days from the AGM (Annual General Meeting) in case of a final dividend. Investors will be notified beforehand of all these dates for clarity.
Ex-Dividend Example
Let us take an ex-dividend date example for a clear understanding. A company named PQR Ltd. issues dividends to its existing shareholders. The company announces the dividends on 22 Feb 2024. It means that the announcement date for the company is 22 Feb 2024. The ex-dividend date decided by the company is 10 Mar 2024. It means new investors can buy shares before 10 Mar 2024 to be eligible for dividends.
Decision-makers also set the record date to 12 Mar 2024, two days after the ex-dividend date. It means the eligibility of investors will be checked on 12 Mar 2024. The company finally distributes dividends to shareholders on 18 Mar 2024. In this case, the payment date for PQR is 18 Mar 2024. All these dates are pre-notified to investors by public companies. It allows investors to buy or hold shares to receive dividends.
How to Find the Ex-Dividend Date?
Understanding the ex-dividend date is important for investors. Public companies typically notify investors about crucial dates including the dates associated with dividends in advance. Investors can hold shares until the record date to receive dividends.
Finding this date is not a big task for new investors in a company. Usually, stock exchanges notify new investors about it. One can easily know when the stock goes ex-dividend, offering no dividends.
This date can also be found with the help of the record date in India. Stock purchase settlements in India usually happen in T+2 days. It means that one must purchase stocks at least two days before the record date to be eligible for dividends. Additionally, the date will be two days before the record date.
Impact of Ex-Dividend Date
The ex-dividend date is important for new investors willing to purchase company shares on the basis of its dividend yield. New investors must purchase company shares before this crucial date to become eligible for dividends.
The ex-dividend date also impacts the share price in the market. Since shares carry dividends before this date, their prices tend to rise. Also, these prices might drop after this date, as shares will not offer dividends. The demand for a stock is usually high when it offers dividends to shareholders.
Importance of the Ex-dividend Date
The ex-dividend date is important to both existing shareholders and new investors. Existing shareholders can know how long they must hold shares to receive dividends. They must hold shares till the record date to be eligible for dividends. A stock will not hold any dividends on and after this date. It allows them to make informed decisions when purchasing new stocks.
Some new investors might think of purchasing stocks just before the ex-dividend date. It will make them eligible for the upcoming dividends. However, it is only sometimes a profitable scenario for investors. The share price might rise exponentially just before the ex-dividend date. The dividend amount might be smaller than the price change of the share in the market. In such a case, the investor might not make an overall profit even after receiving dividends. Investors need to calculate the dividend yield and make decisions accordingly.
Significance of the Ex-dividend Date
The ex-dividend date is significant to investors in many ways. Did you know that the term ‘ex-dividend’ refers to stocks without dividends? Investors can know when a stock does not carry dividends with the help of this date.
The date is essential for shareholders, new investors, and company officials. The management can set the record date two days after the ex-dividend date. Companies can easily shortlist investors eligible for dividends on the record date. Since shares usually get credit in Demat accounts two days after the purchase, the ex-dividend date comes before the record date.
Difference Between Ex-Dividend Date and Record Date
Some of you might confuse the ex-dividend date with the record date. Here are the dissimilarities between the two dates:
| Ex-Dividend Date | Record Date |
| It is the deadline on which the stock trades without any dividends | It is the cutoff date to decide the eligibility of shareholders for receiving dividends |
| You will not receive dividends after buying shares on or after this date | You will receive dividends after holding shares till the record date |
| It is usually set two days before the record date | The record date is usually set two days after the ex-dividend date |
Conclusion
Investors must be familiar with the ex-dividend date and its significance now. It is the deadline to buy shares of a company with dividend rights. They must also know the announcement, record, and payment dates. Companies usually notify investors about these dates in advance. Check the crucial dates for a preferred stock now!
