What is the Ex-Dividend Date?
- Answer Field
-
If you buy a stock on or after its ex-dividend date, you will not receive the next dividend.
BAJAJ BROKING
No matter what type of an investor you are, it is important for you to understand the concept of “Ex-Dividend Date.” If you purchase a stock on or after the ex-dividend date, you will not receive the next dividend. When you buy a share on or after its ex-dividend date, your name is not on the record of the company as its shareholder. Hence, the company sends the dividend to the seller of the share and not to you, who is the buyer.
If you are a frequent trader, you would have heard of the ex-dividend date. When you purchase a share on or after the ex-dividend date, you will not receive the upcoming dividend. You will receive the upcoming dividend only if you buy a share before this date. Read this blog, as it explains the meaning of the ex-dividend date, the difference between the record date and the ex-dividend date, how to find the ex-dividend date, etc.
Understanding the Ex-Dividend Date in Detail
Let us understand the concept of ex-dividend date in detail. If you buy a company’s shares on or after this date, you will not receive the next dividend. In that case, will the company not pay the dividend to anyone?
Well, the company will still pay the dividend but to the seller of those shares and not to their buyer. You may even wonder whether you will never receive dividends for such shares. Well, you will receive all the future dividends, but not the next dividend.
When a company decides to declare a dividend, its directors set a record date. All those shareholders who want to receive the dividend must be on the company’s records as its shareholders on this record date.
After the record date is set, the ex-dividend date must also be established based on the rules of the stock exchange where the shares are trading. Having understood what the ex-dividend date is, let us delve deeper into this topic.
Additional Read: What is Trading Account: Definition, Types & Benefits
In India, the ex-dividend date is set mostly two trading days before the record date. Let us say that a company declares a dividend on September 19, 2024, and has kept October 9, 2024, as the record date.
In this case, October 7, 2024, will be kept as the ex-dividend date because it is two trading days before the record date. You may wonder why there is a gap between the ex-dividend date and the record date.
When you buy or sell a share in the stock market, the transaction does not settle on the same day. It takes time to settle the trade and to transfer the ownership from the seller of a share to its buyer.
If you purchase a share on or after its ex-dividend date, you will not be shown as the owner of the share in that company’s records on the record date. Hence, you will not receive the upcoming dividend, which instead will be paid to the seller.
The following four dates are important for dividend payment:
Date of Declaration: The date on which a company’s board announces the payment of a dividend is called the dividend declaration date. While making such a declaration, a company announces how much dividend per share it will pay and it also provides the record date and the payment date of the said dividends.
Ex-Dividend Date: This date is not set by a company that has declared a dividend. The company only sets the record date based on which a stock exchange sets the ex-dividend date. The ex-dividend date in India is typically set two trading days before the record date.
Record Date: This is the date on which a person has to be on a company’s record as its shareholder, if he wants to receive the next dividend. If he is not a shareholder on its records on the record date, he will not receive the upcoming dividend.
Payment Date: The date on which a dividend is finally paid to shareholders is called the payment date.
Example of The Ex-Dividend Date (need to add content in a paragraph format)
When a company declares a dividend, it mostly lets its shareholders know the ex-dividend date and the record date through an email. Therefore, it is not tough to find the ex-dividend date of the shares you own.
However, there is another way to know the ex-dividend date. Suppose you know that the record date for a company's upcoming dividend is September 26, 2024, then you can easily find out its ex-dividend date. As the ex-dividend date is two trading days before the record date, the ex-dividend date in this case should be September 24, 2024.
New-age investors are highly aware of complex tax laws and stock price movements. Hence, if they want to buy a stock hoping that its price will increase before its ex-dividend date, then they need to consider how much taxes they will be paying based on their holding period. They could be either paying a tax on short-term capital gains or on long-term capital gains.
Typically, a stock price tends to be more volatile around its ex-dividend date than otherwise. Often, a stock’s price falls on or after its ex-dividend date. Hence, if a new-age investor invests for a long-term, then he should not worry much about the volatility in a stock price around its ex-dividend date. If he ends up either buying or selling a share around its ex-dividend date, it may defeat his long-term investment objective.
While it is not difficult to understand the meaning of the ex-dividend date, it is a bit tricky to appreciate its importance. That said, this date is extremely important for investors. When a company declares a dividend, its stock price can increase, as the investors anticipate the payment of the dividend.
Suppose you want to buy a company’s share which has declared a dividend, you should check whether its stock price has risen after the dividend announcement. If it has already risen enough, then the increase in the stock price may offset the upcoming dividend.
A company’s stock price can also fall on or after its ex-dividend date. This is because people who buy its shares on after the ex-dividend date will not receive the next dividend.
Hence, if you are willing to buy a company’s share which has declared a dividend, you should track its stock price carefully up to its ex-dividend date. You should also track its stock price between its ex-dividend date and the record date.
If you keep track of a stock price between its dividend declaration date and record date, you may find opportunities to make money. But, you need to carefully analyse how a stock price behaves in this period post-dividend declaration.
Difference Between the Ex-Dividend Date and the Record Date
Ex-Dividend Date | Record Date |
When you buy a share on or after its ex-dividend date, you will not receive the next dividend. | If you are not on the record of a company as its shareholder on the record date, you will not receive the dividend it declares. |
The ex-dividend date is two trading days before the record date. | The record date is two trading days after the ex-dividend date. |
The ex-dividend date is set by the stock exchange on which a stock is listed. | The record date is set by a company’s board of directors. |
Whether you already have a trading account or are on the verge of starting your trading journey, it is important to understand the meaning of the ex-dividend date. This date is particularly important in the case of companies with a strong dividend-paying record. Even for companies which do not announce a significant dividend, the ex-dividend date is crucial because their stock price may exhibit a greater volatility around this date.
Disclaimer: Investments in the securities market are subject to market risk, read all related documents carefully before investing.
This content is for educational purposes only. Securities quoted are exemplary and not recommendatory.
For All Disclaimers Click Here: https://bit.ly/3Tcsfuc
Share this article:
Gold Price in India | Gold Rises 1% to $2,719 Ahead of U.S. PPI Data
12 Dec, 2024 | 39 Min. read
Indian Overseas Bank Receives ₹808.3 Crore Income Tax Refund
12 Dec, 2024 | 2 Min. read
Shakti Pumps Secures ₹754.3 Crore Solar Water Pump Order in Maharashtra
12 Dec, 2024 | 2 Min. read
Coca-Cola Sells 40% Stake in Bottling Arm to Jubilant Bhartia Group
12 Dec, 2024 | 2 Min. read
Vedanta to Consider Fourth Interim Dividend on December 16
12 Dec, 2024 | 2 Min. read
Share Market Today | Flat to Positive Start Expected for Indian Markets Amid Global Cues
12 Dec, 2024 | 4 Min. read
Securities Transaction Tax: Meaning & Charges
12 Dec, 2024 | 7 Min. read
International Gemological Institute India IPO Issue Date & Pricing
12 Dec, 2024 | 4 Min. read
How to Apply for International Gemological Institute India IPO?
12 Dec, 2024 | 3 Min. read
Robo Trading: Meaning, Examples, Features & Types
12 Dec, 2024 | 6 Min. read
India’s Leading Infrastructure Stocks for 2024
12 Dec, 2024 | 6 Min. read
India’s Leading Government Stocks in 2024
12 Dec, 2024 | 6 Min. read
RBI Launches ULI: Transforming Loan Access
August 27, 2024 | 4 Min. read
Textile Sector in India
September 20, 2024 | 5 Min. read
List of IPOs with DRHPs Filed
November 30, 2023 | 3 Min. read
Aditya Birla Group
September 28, 2023 | 10 Min. read
Bajaj Housing Finance Ltd IPO: Things Smart Investors Need to Know
September 05, 2024 | 4 Min. read
Budget Stock Ideas 2024-2025 | Stocks to Buy Today
July 24, 2024 | 4 Min. read
IPO Eligibility Criteria : Full Details
March 15, 2024 | 6 Min. read
What Is the Lock-In Period in IPOs?
October 18, 2023 | 6 Min. read
Godfrey Phillips Announces 2:1 Bonus Shares
September 16, 2024 | 7 Min. read
Jindal Group- A Comprehensive Analysis
September 27, 2024 | 7 Min. read
If you buy a stock on or after its ex-dividend date, you will not receive the next dividend.
Typically, a stock price tends to be more volatile around the ex-dividend date than otherwise. When a company declares a dividend, its stock price may increase up to its ex-dividend date, as people anticipate receiving the dividend. However, on or after the ex-dividend date, the stock price may decline because the ex-dividend date is the cut-off date to receive a dividend.
To qualify for a dividend, investors should purchase a stock at least a day before its ex-dividend date.
All those people who buy a stock on or after its ex-dividend date will not receive the next dividend. Instead, that dividend will be paid to the seller of that stock.
If you have a trading account and you provide your contact details to companies whose stock you own, it should not be difficult for you to find the ex-dividend date. In case you have provided your email id to a company whose stock you have bought, then the company will let you know the ex-dividend date and the record date through an email when it declares a dividend.
No Result Found
Level up your stock market experience: Download the Bajaj Broking App for effortless investing and trading