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Ex-dividend dates and their impact on stock prices explained

by Angela Thompson, Sharesight
The below article is for informational purposes only and does not constitute a product recommendation, or taxation or financial advice and should not be relied upon as such. Please check with your adviser or accountant to obtain the correct advice for your situation.

If you own any dividend stocks, it’s important to understand how those dividends affect the price of their underlying securities. More specifically, understanding what an ex-dividend date is, and how it impacts on market prices can help you shape your personal investing strategy.

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A note on dividends and distributions

Holders of investment funds, such as mutual/managed funds or exchange traded funds (ETFs), receive periodic distributions instead of dividends. In this context, references to dividends within this article also apply to distributions.

Important dividend dates

When it comes to dividends, there are 4 important dates for investors to keep in mind:

Announcement date

  • The announcement date (also known as the announce date or declaration date) is the date on which a company’s board of directors announces the next dividend it will pay to its shareholders.

  • The announcement will include the dividend amount to be paid to shareholders. This is typically a dollar amount per share owned – for example, $0.12 per share.

  • The announcement will also include the date that the dividend will be paid (the payment date), and the cut-off date by which an investor must hold that stock in order to earn the dividend (the record date).

Record date

  • The record date is the cut-off date established by the company to determine which shareholders are eligible to receive a dividend.

  • An investor must be on the company’s shareholder record on this date in order to receive the dividend payment.

Ex-dividend date

  • Once the record date is set, the ex-dividend date, also known as the ex-date, ex-entitlement date, or reinvestment date (or ex-distribution date when referring to funds or trusts) is determined based on the rules of the stock exchange on which the security is traded.

  • Typically, the ex-dividend date is one business day before the record date.

  • This is required because when you buy or sell a stock, the trade takes one business day to fully settle – this is known as “T+1” settlement.

  • If you purchase and hold a security before its ex-dividend date, you will receive the next dividend. Reversely, if you purchase a security after the ex-dividend date, you will not receive the dividend.

Payment date

  • The payment date or pay date is the date when dividend or distribution checks are sent or deposited into investor accounts.

  • If a shareholder has opted into a company’s dividend reinvestment plan, then the dividends or distributions will be reinvested in lieu of a cash payment.

An example of a dividend announcement and payout

To help explain how dividends are announced and paid out, here’s a real-life example of a recent dividend:

On March 13, Intel (INTC.NASQAQ) declared that a dividend of $0.315 per share would be paid on June 1 to investors who owned the stock as of May 7:

Intel declares dividend - screenshot

That means that a shareholder who purchased Intel stock prior to the ex-date of May 7 was entitled to the dividend, and conversely a new shareholder who purchased Intel stock after May 7 was not.

This is how the dividend payout would have been calculated for a shareholder who owned 1,000 shares of Intel prior to May 7:

Shares held prior to ex-dividend dateDividend per shareDividend paid
1,000$0.315$350
(1,000 x $0.315)

Based on this example, on June 1 Intel would have sent the investor a $350 dividend in the form of a cheque or bank deposit (or reinvested $350 worth of dividends on behalf of the shareholder if they had opted-in to Intel’s dividend reinvestment plan).

The impact of dividend dates on stock prices

While a stock’s dividend history plays into its popularity amongst dividend investors, the announcement and payment cut-off dates also have an effect on its price. Here’s a breakdown of which dates to keep in mind when deciding to buy or sell a particular stock:

Announcement date

The announcement date is important because a change in the expected dividend or distribution payment can cause the security to quickly rise or fall as investors respond to new expectations. For example:

  • If a company that usually pays a dividend announces a dividend that is lower than expected (or no dividend at all), the market may interpret it as a sign that the company is having financial difficulties, and the price will go down. While in reality the company may have decided to use its profits to hire more people or increase its R&D budget, market sentiment is the ultimate decider when it comes to the stock’s price.

  • On the other hand, a dividend announcement naturally encourages investors to purchase stock, therefore boosting its price. For this reason, many companies strive to pay consistent dividends to their shareholders.

Ex-dividend date

As discussed earlier, you must purchase a security before its ex-dividend date in order to receive its next dividend or distribution payment. Here are some more things to keep in mind:

  • Because investors know that they will receive a dividend if they purchase a stock before its ex-dividend date, they are often willing to buy it at a premium. This often causes the price of a stock to increase in the days leading up to its ex-dividend date.

  • Then, when the market opens on the ex-dividend date, the security will usually drop in price by the amount of the expected dividend or distribution to be paid.

  • While this decrease is really based on market sentiment rather than any set rule, it makes sense because the dividend comes from the company’s reserves, therefore technically decreasing the value of the company.

  • When a security is trading without the value of its next dividend payment included in its price, it is known as having “gone ex-dividend”. During this period, the acronym “XD” may appear next to its stock symbol on trading platforms.

  • Because the price of a security drops by about the same value of the dividend, buying it right before the ex-dividend date shouldn’t result in any gains. Similarly, investors buying on or after the ex-dividend date get a “discount” on the security price to make up for the dividend they won’t be receiving.

  • You might think it’s a good idea to buy a stock shortly before the ex-dividend date, and sell it on or shortly thereafter, in order to make a quick profit on the dividend. This is strategy is called “dividend stripping” or “buying dividends” and it is generally not a good one. That’s because, as mentioned above, the price of a stock tends to be reduced by the amount of the dividend on the ex-dividend date. So would very likely just break even – and that’s not including the two brokerage fees you would have to pay for the buy and sell transactions.

Record date

The record date shouldn’t have an impact on a stock price and therefore shouldn’t be a major factor for an investor’s decision-making process.

Payment date

Since the dividend or distribution payment date is known in advance, the payment date shouldn’t have any impact on the security’s price.

Where to find dividend information

There are a few places you can rely on for dividend dates and payout amounts:

1 – The stock or fund provider

One place you can look for dividend information is with the stock or fund provider. For example, the Vanguard Australia website allows you to view up to 10 years of distributions for the Vanguard MSCI Index International Shares ETF (VGS):

VGS distributions 2019 - screenshot

When researching a new stock or fund you’re looking to invest in, this can be a good way to understand its dividend yield and predict what future income you might expect from the security (with the understanding that past performance is no guarantee of future results).

2 – Sharesight: dividend tracking

If you have an existing security, the best way to track its dividends is with Sharesight. That’s because when you add a holding to your Sharesight portfolio, all of the dividends that have been paid out since it was purchased will automatically flow through, going back up to 20 years, and ongoing. You can click on any of the dividend records to view more information about the dividend, and edit the data as required:

edit dividend - magna - sharesight

At the bottom of the layover are details of the corporate action, including:

  • Paid On – The date the dividend was paid
  • Ex Date – The ex-dividend date
  • Announced On – The date the dividend was announced
  • Amount – The cash amount that was paid out as a dividend
  • Dividend Type – The type of dividend that was paid, such as an ordinary dividend, stock split, etc.

Depending on your portfolio tax residency, other information may appear on this dividend record. For example, if the portfolio has an Australian tax residency, the record will also display Australian tax components such as the TFN holding tax and franking credits.

Another benefit of using Sharesight to track your dividends is that it factors your dividends into your performance return. If you’re investing in dividend-paying stocks, the dividends can make up a large part of your return and can really add up over time. Additionally, dividends are not usually tracked by your broker, so if you’re relying on your broker’s return figures, you’re missing the full picture of how your portfolio is really performing.

3 – Sharesight: Future Income Report

Once you’ve added your holdings to Sharesight, it will also provide you with a running list of expected dividends or distributions for the stocks you hold in your portfolio, as they are announced to the market:

Upcoming Dividends - Sharesight Future Income Report

This report estimates your upcoming dividend income based on your actual holdings, and provides the ex-date and payment date for each security. For more information, check out our article on How to see upcoming dividends with Sharesight.

Track your dividends with Sharesight

Sharesight was built for investors like you, and makes it easy to keep track of your portfolio. Here’s how:

  • Automatically track your daily price & currency fluctuations, and handle corporate actions such as share splits.
  • See upcoming dividend payments with the Future Income Report.
  • Calculate your dividend income with the Taxable Income Report.
  • Get the full picture of your investment performance, including the impact of brokerage fees, dividends, and capital gains with Sharesight’s annualised performance calculation methodology.

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