What is an Ex-Dividend Date?
5paisa Research Team
Last Updated: 23 Sep, 2024 03:45 PM IST
Want to start your Investment Journey?
Content
- Introduction
- What is the Ex-Dividend Date?
- Types of Dates for Dividend Payment
- Ex-Dividend Example
- Impact of Ex-dividend Date on Share Prices
- Importance of the Ex-dividend Date
- Who Sets the Ex-Dividend Date?
- Which Is More Important, the Record Date or the Ex-Dividend Date?
- When is the Ex-Dividend Date of a Company Relative to its Record Date?
- Conclusion
Introduction
Dividend-paying companies can be great investments that create wealth over time. Such companies not only offer capital appreciation but can also provide you with regular income through the payment of dividends.
However, before investing in a dividend-paying company, you must understand how dividends work. Along with the announcement date, record date, and payment date, the ex-dividend date is one of the four key dates you need to know as a dividend investor. Let's look at ex-dividend date meaning, how ex-dividend dates work and their effect on stock prices, and how to take advantage of them when investing.
What is the Ex-Dividend Date?
A company's ex-dividend date specifies which stockholders will receive the company's dividend on that particular date. Stocks of the company go ex-dividend on this day, meaning they do not carry the dividend value associated with their next dividend payment.
The investor will be documented on the dividend record date if they invest before the ex-dividend date. A shareholder who purchases shares on or after the ex-dividend date is not considered a shareholder at the record date. Dividend payments will be made to the seller, who remains the owner of the record.
Ex-dividend dates serve as buffers to ensure there is sufficient time to transfer ownership of the stock from a seller to a buyer. Therefore, you must purchase the stock before the ex-dividend date to receive the upcoming dividend payment.
Types of Dates for Dividend Payment
Now that you know what dividend ex-date means, let’s understand other types of dividend-paying dates. The four important dates to remember are
1. Declaration Date
Declaration dates are the dates when the directors approve and announce dividend payments. While stating the dividend amount to be paid, the declaration also specifies the record and payment dates.
For instance: On September 16, 2019 (declaration date), XYZ Co. declared a dividend of INR 200 per stock (dividend size) payable on November 13, 2019 (the payment date) to stockholders of record as of October 30, 2019 (record date).
2. Ex-Dividend Date
As mentioned above, ex-dividend dates refer to the first day on which a stock trades sans a dividend. The stock exchange where the company's stock is traded sets the ex-dividend date, not the company. Ex-dividend dates typically occur up to three days before record dates. Dividends are not payable to shareholders who purchase shares on or after the ex-dividend date.
For example, the ex-dividend date for XYZ Co. is October 28, 2019, which is two days before the record date.
3. Record Date
To receive a dividend, investors must be on the company's books on the record date, also called the date of record.
Record dates and ex-dividend dates are often confused. Remember that the company sets the record date and the stock exchange sets the ex-dividend date. Stock trades on exchanges have a settlement period, which makes the ex-dividend date earlier than the record date.
If an investor purchases stock on an exchange, it takes time for the company's records to reflect the investor's information. The settlement period for most financial products in India is t+2. This means that the settlement of a stock trade takes two business days.
For example, XYZ's ex-dividend date is October 28, 2019, while its record date is October 30, 2019.
4. Payment Date
Dividends are paid to shareholders on the payment date. Shareholders may receive dividend payments by mail or electronically.
For example, XYZ pays dividends on November 14, 2019. A dividend of INR 200 would be paid to XYZ shareholders on November 14.
Ex-Dividend Example
After discussing what is ex date in the share market, let’s see an example of an ex-dividend date.
Let's say that there's a company named ABC Limited. Equity shareholders of the company will receive dividends. The declaration date of the company is November 03, 2020, the record date is November 08, 2020, and the ex-dividend date is December 07, 2020.
To become eligible for dividends, you need to purchase the shares by November 06, 2020. Why is that so? This is how it works.
You will receive your shares after t+2 days, which in this case is November 08, 2020, when you buy the shares of the company on November 06, 2020. Your name would be on the company's book on November 08, 2020, which means that you would receive dividends on that date if you are a shareholder.
Instead, if you buy the shares at the ex-dividend date (November 07, 2020), the shares will be credited to your account only on November 09, 2020, which is beyond the record date. Dividends would not be available to you since you would not be a shareholder on the record date.
Impact of Ex-dividend Date on Share Prices
Investors often pay a premium for stocks because they know they will receive dividends if they buy them before their ex-dividend date. Hence, when a stock is approaching its ex-dividend date, its price often increases.
Normally, a stock's price will drop by the amount of the expected dividend when the market opens on the ex-dividend date. Even though the decrease is primarily driven by market sentiment rather than a set rule, it still makes sense since the dividend comes from the company's reserves, diminishing the company's value technically.
If you buy security right before the ex-dividend date, you shouldn't see any gains because its price drops by about the same amount as the dividend. Additionally, investors buying after or on the ex-dividend date get a discount to compensate for not receiving the dividend.
Importance of the Ex-dividend Date
For the company and its investors, the days before the ex-dividend date are essential since the company loses its dividend value after the date. Anyone who buys the shares before the ex-dividend date will be able to benefit from the dividend value of the stocks.
As a result, the stock price increases based on the rupee value of the dividend announced. Stock prices crossing dividend values can provide current investors with a good opportunity to profit. Therefore, the ex-dividend date provides a temporary capital gain along with the promise of receiving the dividend when it becomes payable.
Who Sets the Ex-Dividend Date?
The stock exchange (where the company’s stock is traded) determines the ex-dividend date.
Which Is More Important, the Record Date or the Ex-Dividend Date?
Ex-dividend dates are more important than record dates. Investing in shares before this date will make investors owners of record for the current dividend. At the record date, shareowners' names are simply compiled. When you seek dividends, it's important to know the ex-dividend date so you can plan your transaction accordingly.
When is the Ex-Dividend Date of a Company Relative to its Record Date?
Ex-dividend dates are usually one to three business days before record dates.
Conclusion
A company’s ex-dividend date is essential when investors are adjusting and managing their holdings. Additionally, the ex-dividend date also assists investors who want to make quick profits in determining when to purchase shares of companies that are paying dividends. You must decide on an investment strategy based on the ex-dividend date and purchase shares of these companies.
More About Stock / Share Market
- What is Dabba Trading?
- Learn about Sovereign Wealth Fund(SWF)
- Convertible Debentures: A Comprehensive Guide
- CCPS-Compulsory Convertible Preference Shares : Overview
- Order Book and Trade Book: Meaning & Difference
- Tracking Stock: Overview
- Variable Cost
- Fixed Cost
- Green Portfolio
- Spot Market
- QIP(Qualified Institutional Placement)
- Social Stock Exchange(SSE)
- Financial Statements: A Guide for Investors
- Good Till Cancelled
- Emerging Markets Economy
- Difference Between Stock and Share
- Stock Appreciation Rights(SAR)
- Fundamental Analysis in Stocks
- Growth Stocks
- Difference Between ROCE and ROE
- Markеt Mood Index
- Introduction to Fiduciary
- Guerrilla Trading
- E mini Futures
- Contrarian Investing
- What is PEG Ratio
- How to Buy Unlisted Shares?
- Stock Trading
- Clientele Effect
- Fractional Shares
- Cash Dividends
- Liquidating Dividend
- Stock Dividend
- Scrip Dividend
- Property Dividend
- What is a Brokerage Account?
- What is Sub broker?
- How To Become A Sub Broker?
- What is Broking Firm
- What is Support and Resistance in the Stock Market?
- What is DMA in Stock Market?
- Angel Investors
- Sideways Market
- Committee on Uniform Securities Identification Procedures (CUSIP)
- Bottom Line vs Top Line Growth
- Price-to-Book (PB) Ratio
- What is Stock Margin?
- What is NIFTY?
- What is GTT Order (Good Till Triggered)?
- Mandate Amount
- Bond Market
- Market Order vs Limit Order
- Common Stock vs Preferred Stock
- Difference Between Stocks and Bonds
- Difference Between Bonus Share and Stock Split
- What is Nasdaq?
- What is EV EBITDA?
- What is Dow Jones?
- Foreign Exchange Market
- Advance Decline Ratio (ADR)
- F&O Ban
- What are Upper Circuit and Lower Circuit in Share Market
- Over the Counter Market (OTC)
- Cyclical Stock
- Forfeited Shares
- Sweat Equity
- Pivot Points
- SEBI-Registered Investment Advisor
- Pledging of Shares
- Value Investing
- Diluted EPS
- Max Pain
- Outstanding Shares
- What are Long and Short Positions?
- Joint-Stock Company
- What are Common Stocks?
- What is Venture Capital?
- Golden Rules of Accounting
- Primary Market and Secondary Market
- What Is ADR in Stock Market?
- What Is Hedging?
- What are Asset Classes?
- Value Stocks
- Cash Conversion Cycle
- What Is Operating Profit?
- Global Depository Receipts (GDR)
- Block Deal
- What Is Bear Market?
- How to Transfer PF Online?
- Floating Interest Rate
- Debt Market
- Risk Management in stock Market
- PMS Minimum Investment
- Discounted Cash Flow
- Liquidity Trap
- Blue Chip Stocks: Meaning & Features
- Types of Dividend
- What is Stock Market Index?
- What is Retirement Planning?
- Stock Broker
- What is the Equity Market?
- What is CPR in Trading?
- Technical Analysis of Financial Markets
- Discount Broker
- CE and PE in the Stock Market
- After Market Order
- How to earn 1000 rs per day from the stock market
- Preference Shares
- Share Capital
- Earnings Per Share
- Qualified Institutional Buyers (QIBs)
- What Is the Delisting of Share?
- What Is The ABCD Pattern?
- What is a Contract Note?
- What Are the Types of Investment Banking?
- What are Illiquid stocks?
- What are Perpetual Bonds?
- What is a Deemed Prospectus?
- What is a Freak Trade?
- What is Margin Money?
- What is the Cost of Carry?
- What Are T2T Stocks?
- How to Calculate the Intrinsic Value of a Stock?
- How to Invest in the US Stock Market From India?
- What are NIFTY BeES in India?
- What is Cash Reserve Ratio (CRR)?
- What is Ratio Analysis?
- Preference Shares
- Dividend Yield
- What is Stop Loss in the share market?
- What is an Ex-Dividend Date?
- What is Shorting?
- What is an interim dividend?
- What is Earnings Per Share (EPS)?
- Portfolio Management
- What Is Short Straddle?
- The Intrinsic Value of Shares
- What is Market Capitalization?
- Employee Stock Ownership Plan (ESOP)
- What is Debt to Equity Ratio?
- What is a stock exchange?
- Capital Markets
- What is EBITDA?
- What is Share Market?
- What is an investment?
- What are bonds?
- What Is a Budget?
- Portfolio
- Learn How To Calculate The Exponential Moving Average (EMA)
- Everything about the Indian VIX
- The Fundamentals of the Volume in Stock Market
- Offer for Sale (OFS)
- Short Covering Explained
- What Is The Efficient Market Hypothesis
- What Is Sunk Cost: Meaning, Definition, and Examples
- What Is Revenue Expenditure? All You Need To Know
- What are operating expenses?
- Return On Equity (ROE)
- What is FII and DII?
- What is Consumer Price Index (CPI)?
- Blue Chip Companies
- Bad Banks And How They Function.
- The Essence Of Financial Instruments
- How to Calculate Dividend per Share?
- Double Top Pattern
- Double Bottom Pattern
- What is the Buyback of Shares?
- Trend Analysis
- Stock Split
- Right Issue of Shares
- How To Calculate the Valuation of a Company
- Difference between NSE and BSE
- Learn How to Invest in Share Market Online
- How to Select Stocks for Investing
- Do’s and Don’ts of Stock Market Investing for Beginners
- What is Secondary Market?
- What is Disinvestment?
- How to Become Rich in Stock Market
- 6 Tips to Increase your CIBIL Score and Become Loan-worthy
- 7 Top Credit Rating Agencies in India
- Stock Market Crashes In India
- 5 Best Trading Books
- What Is the Taper Tantrum?
- Tax Basics: Section 24 Of The Income Tax Act
- 9 Read-worthy Share Market Books for Novice Investors
- What is Book Value Per Share
- Stop Loss Trigger Price
- Wealth Builder Guide: Difference Between Savings And Investment
- What is Book Value Per Share
- Top Stock Market Investors In India
- Best Low Price Shares to Buy Today
- How Can I Invest in ETF in India?
- What is ETFs in Stocks?
- Best Investment Strategies in Stock Market for Beginners
- How To Analyse Stocks
- Stock Market Basics: How Share Market Works In India
- Bull Market Vs Bear Market
- Treasury Shares: The Secrets Behind The Big Buybacks
- Minimum Investment In Share Market
- What is Delisting of Shares
- Ace Day Trading With Candlestick Charts - Simple Strategy, High Returns
- How Share Price Increase or Decrease
- How to Pick Stocks in Stock Market?
- Ace Intraday Trading With Seven Backtested Tips
- Are You A Growth Investor? Check These Tips to Increase Your Profits
- What Can You Learn From The Warren Buffet Style of Trading
- Value or Growth - Which Investment Style Can be the Best For You?
- Find Why Momentum Investing is Trending Nowadays
- Use Investment Quotes to Improve Your Investment Strategy
- What is Dollar Cost Averaging
- Fundamental Analysis vs Technical Analysis
- Sovereign Gold Bonds
- A Comprehensive Guide To Learn How to Invest In Nifty In India
- What is IOC in Share Market
- Know All About Stop Limit Orders And Use Them To Your Benefit
- What is Scalp Trading?
- What is Paper Trading?
- Difference Between Shares and Debentures
- What is LTP in the Share Market?
- What is Face Value of Share?
- What is PE Ratio?
- What is Primary Market?
- Understanding the Difference between Equity and Preference Shares
- Share Market Basics
- How to Choose Stocks for Intraday Trading?
- What is Intraday Trading?
- How Share Market Works In India?
- What is Scalp Trading?
- What are Multibagger Stocks?
- What are Equities?
- What is a Bracket Order?
- What Are Large Cap Stocks?
- A Kickstarter Course: How To Invest In Share Market
- What are Penny Stocks?
- What are Shares?
- What Are Midcap Stocks?
- Beginner's Guide: How to Invest in the Share Market Successfully Read More
Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing. For detailed disclaimer please Click here.