Glossary · Stocks and markets
Ex-dividend date
The ex-dividend date is the first day a stock trades without its next dividend: buy on or after it and that payment goes to the seller.
Also called: ex-date, ex-dividend
In plain words
A company announces: “we will pay $1 per share on June 15 to everyone who owns our stock.” But shares change hands all day long. Who gets the money? The answer is a cutoff called the ex-dividend date (“ex” means “without”).
Buy the share before the ex-dividend date and the dividend is yours. Buy it on the ex-date or later and the dividend goes to the person who sold it to you. In the same way, sell before the ex-date and you give the dividend up; sell on it or later and you still get paid.
Since US trades settle in one business day, the ex-dividend date is usually the same day as the record date, when the company takes its list of owners.
Example
A $1 dividend, day by day
- May 1: the company declares a $1 dividend, payable June 15 to the owners on its record on May 30. The ex-dividend date is May 30.
- May 29: you buy 100 shares at $50.00. You own them before the ex-date, so the dividend will be yours.
- May 30, ex-dividend: the shares open around $49.00. Nothing went wrong: $1 of the company’s cash is now promised to you, not to the next buyer.
- June 15: $100 arrives in your account, before tax.
Your 100 shares plus the $100 are worth about what the shares were worth before: a dividend moves money from the company’s pocket to yours.
One level deeper
The price drop on the ex-date is roughly the size of the dividend, though the market moves for other reasons that day too, so the drop is rarely exact. That is why buying just before the ex-date to “capture” a dividend gives no free money: the price falls by about as much, and the dividend may be taxed.
A dividend has four dates: declaration (the board announces it), ex-dividend (the cutoff for buyers), record (the company’s list of owners) and payment (the cash arrives). For very large special dividends the exchange sets the ex-date after the payment instead.
Funds that hold dividend-paying stocks go ex-dividend too: an ETF’s price drops when it pays out the dividends it has collected.
Why it matters
It decides who gets paid: buy a day too late and the dividend goes to the seller.
It explains a price drop that might otherwise look like a loss.
It shows that a dividend is not extra money on top of a share’s value: it is part of that value, paid out.
A common mistake
Myth: Buying a stock just before the ex-dividend date is a free way to earn the dividend.
In fact: The share price usually falls by about the dividend on the ex-date, so you gain the dividend and lose roughly as much in price, and you may owe tax on the dividend.
Questions people ask
If I sell on the ex-dividend date, do I still get the dividend?
Yes. You owned the share when the ex-date began, so the dividend is yours even if you sell that morning.
What is the difference between the ex-dividend date and the record date?
The record date is when the company takes its list of owners; the ex-date is the trading cutoff that decides who will be on that list. With one-day settlement in the US, they usually fall on the same day.
Why does a stock drop on the ex-dividend date?
Because the dividend’s cash is about to leave the company. Someone buying that day no longer gets it, so they pay about that much less.
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About the numbers
- This page explains a term. It is not investment advice.