Definition: The ex-dividend date indicates the day that investors are no longer entitled to receive a firm’s latest declared dividend.
What Does Ex-Dividend Date Mean?
What is the definition of ex-dividend date? For value investors, who seek to realize a long-term income from dividend investing, the ex-dividend date is very important as it signifies the last day that they are entitled to receive the declared dividend. Put simply, if an investor buys a stock before the ex dividend date, he will receive the next declared dividend.
Additionally, if the stock is purchased before the ex dividend date, the investor can sell the stock on or before the ex dividend date and be eligible for receiving the dividend. It is not necessary to own the stock on the payday. However, if the stock purchase takes place on or after the ex dividend date, the investor is not eligible to receive the declared dividend.
The exdividend date goes hand in hand with the record date, which represents the date that the company announces the shareholders of record on its books. The exdividend date is usually two business days before the record date.
Let’s look at an example.
Example
On March 11, Company ABC declares a quarterly dividend payment of $0.85 and announces the ex dividend date on April 12. John buys 100 shares on April 8, Alex buys 100 shares on April 10, and Maria buys 100 shares on April 13. John and Alex are entitled to receive the quarterly dividend of $0.85 because they bought their shares before April 12, the ex dividend date. Maria, on the other hand, is not entitled to receive the dividend payment because she bought her shares after April 12, the ex-dividend date. The dividend is payable on June 12, and the record date is on March 13.
Therefore:
- Declaration Date: March 11
- Ex-Dividend Date: April 12
- Record Date: March 13
- Payable Date: June 12
On April 12th, the stock price will be adjusted by -$0.85 of the closing price of April 11th. The adjustment takes place because the amount that the company has paid in dividends is no longer part of the company’s equity, thereby lowering its market cap. Therefore, the price is adjusted to reflect the reduction.
Summary Definition
Define Ex-Dividend Date: Ex dividend date means the day that all investors owning stock will receive a dividend as declared on the declaration date.
