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The Ex-Dividend Date - Why It Matters

Did you know that you may buy a stock and still not receive the next stock or cash dividend paid by the company? Two very important dates determine whether you are the one who will receive the next dividend payment and these are the "record date" and the "ex-dividend date".

In order to receive dividends, you need to be present on the company's books as a shareholder on a certain date, known as the "record date". When companies declare a dividend, they set a record date and then the National Association of Securities Dealers, Inc. or the stock exchanges fix the so called "ex-dividend date", typically two business days before the record date.

If you have purchased a stock before the ex-dividend date you are entitled to dividends. If however, you have purchased a stock after or on the ex-dividend date, the seller will receive the next dividend payment.

The ex-dividend date matters even if a company pays the dividend in the form of stock instead of cash, though the procedures in this case are different. In such a case the ex-dividend date is fixed the first business day after the payment of stock dividend and after the record date. Selling the stock before the ex-dividend date will deprive you of your right to stock dividend and grant it to the buyer of your shares.

Thus, if you want to sell your shares without delivering the additional shares acquired as a result of the dividend, you need to do this typically the first business day after the stock dividend is paid instead of the first business day after the record date.

Have in mind that the ex-dividend date may influence the price of a stock if the dividend is significant. In other words, as the ex-dividend date approaches the price of a stock may move up corresponding to the dollar amount of the dividend, and respectively move down by that amount as the ex-dividend date passes.

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