The ex-dividend date, also known as the reinvestment date, is an investment term involving the
timing of payment of dividends on stocks of corporations, income trusts, and other financial
holdings, both publicly and privately held.
For sales before this date, the dividend belongs to the new owner; for sales on or after the
date, the seller is entitled to the dividend.
Background Many publicly traded companies, and some privately
held ones, pay dividends to their stockholders.
The question of who should be paid dividends becomes complex, as these companies are continually
being traded and the composition of their shareholders changes each day.
To settle this question, companies designate a date, known as the record date.
Dividends are paid to the holders of shares as shown on the share register at the record
date.
It takes time for a stock purchase to be recorded on the register however, so stock exchanges
set a date known as the ex-dividend date - generally two business days prior to the record date
- to allow time for this processing.
If, for whatever reason, a share transfer prior to the ex dividend date is not recorded
on the register in time, the seller has to repay the dividend to the buyer when he receives
it.
Thus the key date is the ex-dividend date.
In the United States, the IRS defines the ex-dividend date as "the first date following
the declaration of a dividend on which the buyer of a stock is not entitled to receive
the next dividend payment."
The London Stock Exchange defines the term "ex" as "when a stock or dividend is issued
by a company it is based upon an 'on register' or 'record date'.
However, to create a level playing field when shares are traded on the London Stock Exchange
during this benefit period an 'ex' date is set.
Before this 'ex' date if shares are sold the selling party will need to pass on the benefit
or dividend to the buying party."
Details After the close of business on the day before
the ex-dividend date and before the market opens on the ex-dividend date, all open good-until-canceled
limit, stop, and stop limit orders are automatically reduced by the amount of the dividend, except
for orders that the customer indicated "do not reduce."
This is done because the dividend payout will decrease the value of the company, as it comes
directly from the company's reserves.
At the market opening on the ex-dividend date, the stock will trade at a lower price, adjusted
for the amount of the dividend paid.
If a corporation is distributing something other than a cash dividend, such as rights
or warrants, then the relevant date is called an ex rights date, or ex warrants date, etc.
United States In the United States, the Securities and Exchange
Commission stipulates that there are three days of settlement for stock trades.
The ex-dividend date is normally two business days before the record date.
For the purpose of calculating an ex-dividend date, business days are days on which both
the major stock exchanges and the banks in New York State are open.
Thus Columbus Day and Veterans Day are trading days, but not business days for calculating
an ex-dividend date, since they are legal holidays and banks are not open.
If the record date is not a business day, then counting begins from the most recent
business day instead of the actual record date.
For instance, if the record date is Sunday, then the ex-dividend date is the preceding
Wednesday, not Thursday — assuming no intervening holidays.
The ex-dividend date is two business days prior to the record date.
To be a stockholder on the record date an investor must purchase the stock before the
ex-dividend date.
The latest date he can buy the stock to be a stockholder on record and be entitled to
the dividend would be one day prior to the ex-dividend date of that day) to allow for
the three stock trading day settlement of the stock purchase.
If the investor purchases the stock the day before the ex-dividend date the investor would
be a stockholder on the record date and would be entitled to receive the dividend payment.
An investor who wishes to be entitled to the dividend does not have to wait until after
the record date to sell the stock; however, the investor must hold the stock until the
ex-dividend date.
If the investor were to sell the stock on the ex-dividend date or afterwards, the investor
would still be entitled to the dividend payment.
In this example, assuming that the investor purchased the stock one day before the ex-dividend
date, the investor would be a stockholder on the record date.
If the investor sells the stock on the ex-dividend date, the buyer of the stock would be a stockholder
one day after the record date given the three stock business trading day settlement.
The person that bought the stock would not be entitled to receive the dividend.
An investor only needs to own the stock for one day to be entitled to receive the dividend
payment.
If the investor buys before the ex-dividend date, and sells on the ex-dividend date or
after, the investor will receive the dividend payment.
These rules are different for special dividends over 25%.
United Kingdom For shares listed on the London Stock Exchange,
the ex-dividend date is two business days before the record date.
The ex-dividend date is almost always on a Wednesday with the associated record date
on the following Friday.
Exceptions to this timetable are usually special dividends, and dividends provided by overseas
issuers who only have a secondary listing on the London Stock Exchange.
See also Dividend tax
Dividend units Dividend yield
References
External links SEC page on ex-dividend dates
NASD document on ex-dividend dates List of upcoming ex-dividend dates
Ex-dividend dates for UK listed shares