Ex-dividend is a very important term for dividend investors to be familiar with. It is, in fact, critical to understand. It can be a great disappointment for an investor to buy a stock in anticipation of receiving the next dividend, only to discover he’s not entitled to it. But that happens far too frequently to investors who are not familiar with, or have chosen to ignore, the ex-dividend date.
What is an Ex-Dividend?
Simply stated, the ex-dividend date is the date upon which a stock trades without the rights to the next dividend. Put another way, after going ex-dividend, it is the seller of the stock who is entitled to the dividend, not the buyer.
And this can be tricky, especially for newer investors, because the ex-dividend date can occur weeks, or even months, before the dividend is scheduled to be paid. It is easy to understand the potential for confusion when the ex-dividend date is, let’s say, October 8 while the dividend will not be paid until, perhaps, November 1.
If you were to buy by the stock on October 9 you would not be entitled to the dividend on November 1. The previous owner of your shares would be entitled to it. Plus, on the ex-dividend date, the share price of a stock is lowered to account for the pending dividend payment, which the new shareowners will not be entitled to.
So be sure to know both when the dividend date is and when the ex-dividend date is. If you are investing for dividends you want to be certain you’ll receive the dividend. That might not be the case if you are not aware of the difference between the ex-dividend and dividend dates.
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