What is an ex-dividend date?
The ex-dividend date is one of the four key dates you need to be aware of as a dividend investor, along with the announcement date, record date and payment date. It’s important to understand how the ex-dividend date works and the impact it can have on stock prices, plus how you can use this knowledge to your advantage in your investing strategy.
This article covers:
How does the ex-dividend date work?
A stock’s ex-dividend date is usually set one business day before the record date. The ex-dividend date is the date by which you need to own the dividend-paying stock in order to receive the upcoming dividend payment. If you purchase shares of the stock on or after this date, you will be ineligible for the upcoming dividend payment and the seller will receive the dividend payment instead.
Important dividend dates
When it comes to dividends, there are four important dates for investors to keep in mind:
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 ex-dividend price which will 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).
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.
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 often takes two business days to fully settle. This is known as “T+2” settlement.
If you purchase and hold a security before its ex-dividend date, you will receive the next dividend. Conversely, if you purchase a security after the ex-dividend date, you will not receive the dividend.
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.
How often do dividends get paid?
The frequency of dividend payments will depend on the individual company, with some companies paying dividends monthly, quarterly, semiannually or annually. In some cases, this can also depend on the origin country of the dividend-paying stock. In the US, for example, most companies tend to pay dividends quarterly, while in Australia it is more common to receive dividend payments semiannually. It should also be noted that in some cases, a company may pay a special dividend in addition to its regular dividend, often due to an unusually strong financial performance.
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 paid by Apple (NASDAQ: AAPL).
As can be seen from the screenshot above, on January 27, 2022, Apple declared a cash dividend of $0.22 per share, to be paid on February 10, 2022. The dividend’s ex-date was February 4, 2022, meaning shareholders who owned shares in Apple prior to this date were eligible to receive the dividend, whereas those who purchased shares on or after this date were not.
This is how the dividend payout would have been calculated for a shareholder who owned 1,000 shares of Apple prior to February 4:
|Shares held prior to dividend’s ex-date||Dividend per share||Dividend paid|
|1,000||$0.22||1,000 x 0.22 = $220|
Based on this example, on February 10 Apple would have sent the investor a $220 cash dividend in the form of a cheque or bank deposit.
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.
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.
Because investors know 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.
Note: When a security is trading without the value of its next dividend payment included in its price, it is known as “trading 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 strategy is called “dividend stripping” or “dividend capture” 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 you 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.
Where to find dividend information
There are a few places you can rely on for dividend dates and payout amounts:
Check 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 (ASX: VGS), as seen in the screenshot below.
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).
Automatically track dividends with Sharesight
If you invest in dividend-paying stocks, the best way to keep track of your dividend payments is with Sharesight. This is because when you add a stock to your Sharesight portfolio, Sharesight automatically syncs any dividends that you have received since the stock’s purchase date (going back to 1 January, 2000), while also tracking any ongoing dividend payments you receive. You can also click on any of your stocks’ dividend records to view more information about the dividend and edit the data as required.
As seen in the screenshot above, Sharesight displays key dividend information such as the paid, ex, and announcement dates, dividend amount, dividend type, exchange rate and foreign tax component. Depending on your portfolio’s 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. This is important because dividend payments can really add up over time, making up a significant portion of your return. 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.
See upcoming dividends with the Future Income Report
Once you’ve added all your holdings to Sharesight, you can run the Future Income Report to see a breakdown of all the upcoming (announced) dividends for stocks in your portfolio. The report estimates your upcoming dividend income based on your actual holdings, and provides the ex-date and payment date for each security, making it a useful way to project your portfolio’s cash flow, or even track your monthly dividend income.
Track the impact of dividends on your performance with Sharesight
Automatically track your dividend and distribution income from stocks, ETFs, LICs and mutual/managed funds – including the value of franking credits
Use the Dividend Reinvestment Plan (DRPs/DRIPs) feature to track the impact of DRP transactions on your performance (and tax)
Easily share access of your portfolio with family members, your accountant or other financial professionals so they can see the same picture of your investments as you do
Sign up for a FREE Sharesight account and start tracking the impact of dividends on your investment performance today.