What Is The Ex Dividend Date?
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What is the ex-dividend date?
It’s a deadline on a dividend investor’s calendar. If you own the stock before this date, you’ll be paid the next dividend.
Buy the stock after the ex-dividend date, and you won’t be paid the current dividend.
Here’s another way of looking at it.
Somebody actually owns this dividend payment money. When the stock sells before the ex dividend date, the dividend is owned by the stock’s new owner. On or after the ex dividend date, it’s owned by the seller.
You can’t show up late for the party and hold dividend stocks for a few minutes just to take the dividend money and run. Not quite, but some short-term traders with an appetite for risk try to use the dividend investment date with a strategy called Dividend Capture.
I’ll show you how the Dividend Capture strategy works in a minute.
But first, let’s look at how the actual ex-dividend date works.
Ex-Dividend Date Basics
If you buy a stock, you need to own it for one day, which is the record date, to get the dividend payment.
The record date is the date you actually take ownership of the stock after you’ve bought it.
How long do you need to hold onto the stock before you can sell it and still keep the dividend?
All you need to do is buy and settle before the ex-dividend date, and sell on the actual ex-dividend date, or anytime after that. You don’t have to hold the stock until the payment date.
The record date is the day the company identifies shareholders who are entitled to receive the dividend.
The payment date is just what it sounds like… the date the dividend payment is processed. This usually happens between two weeks and a month after the ex-dividend date.
Before the markets open on a stock’s ex-dividend date, the exchange will lower the share price by the amount of the declared dividend.
Let’s say Company Q declares a $2 dividend and an ex-dividend date of March 18th.
On March 17th, when the market closes, Company Q’s stock trades at $66. On March 18th, at the opening bell, it will trade for $64. If you buy the stock before March 18th, you get the dividend. Buy it on March 18th, and you won’t get the dividend.
How do you find out when the ex-dividend date is? You’ll see it listed with the stock on all the big financial sites.
The declaration date comes before the ex-dividend date. This is when the company makes a formal announcement that it will pay a dividend, how much it will pay, and when.
The declaration date is usually made one of two ways… in a quarterly earnings call, or in a news release. Sometimes, you might hear the declaration date called the announcement date. It’s the same thing.
How The Ex-Dividend Date Impacts Trading
You already know that when the market opens on a company’s ex-dividend date, the share price is lowered from the day before by the amount of the dividend being paid.
But that’s not the full story.
Even when the stock is marked down by the amount of the dividend to be paid, because of market conditions, it could open at an entirely different price, either lower or higher.
In the example of the stock of company Q, where the opening price should be the previous day’s closing price minus the $2 dividend, you might see the stock open the day’s trading on the ex-dividend date at a price different than $64.
Let’s take a look at what happened with Exxon Mobil (XOM) the week its ex-dividend date was announced.
The declaration date was Thursday, November 6th, 2014. The ex-dividend date was Friday, November 7th. The quarterly dividend payment was $0.69 a share.
Here’s a chart for the Exxon Mobil share price for the two weeks surrounding the ex-dividend date.
See what happened?
A runup before the ex-dividend date, and a selloff after.
Now, keep in mind the dividend isn’t the only thing impacting the Exxon Mobil stock price. Energy companies have been on a wild ride.
But look at this chart and you’ll see investors lining up in anticipation of the declaration date, then hitting the road after the ex-dividend date.
It’s just like a departure gate in an airport.
Seasoned travelers have a pretty good idea of when the gate agent will make the boarding announcement. They’re out of their chairs and standing in line just before the announcement’s made.
How A Dividend Capture Strategy Works
Some traders like to use the ex-dividend date to time trades with what’s called a Dividend Capture strategy.
Traders will buy the stock at the last minute, so they’re entitled to collect the dividend, then they sell as soon as they can.
Sounds good, doesn’t it? A simple, common sense way to pick up some extra income.
Well, I’d suggest you stay away from using the dividend capture strategy. Too many things have to go right for you to make money.
You need to get in at the right time, at the right price, and then you need to get out at the right price.
Take another look at the Exxon Mobil chart. To make money with a dividend capture strategy, you had to buy on the 4th and sell on the 10th.
Sorry. My crystal ball doesn’t work quite this well.
But here’s what does work.
Ex-Dividend Date Benefits
What is the ex-dividend date good for?
For most of us, it’s a great way to check in once a quarter on the performance of the company we’ve invested in.
The ex-dividend date is a great scorecard. Over time, it shows us if we’ve invested in a company that protects shareholders from dividend cuts. Ideally, dividends are growing, and your portfolio is growing safely and consistently.
A great way to do this…
Instead of trying to time the market, know how to find the best stock for dividend income.
That’s the best way to invest in dividend stocks.
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Exxon Mobil (XOM)
Dividend Yield: 3.18%
Annual Payout: $2.76
Payout Ratio: 36.7%
P/E: 11.02
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Michael Jennings writes and edits DividendStocksResearch.com. Sign up for our free dividend reports and dividend newsletter at https://dividendstocksresearch.com/free-sign-up. We’ll show you how to create regular income by investing in dividend stocks, easily, step-by-step.
Category: Dividend Basics
