Ex-Dividend Calendar

Knowing when a stock trades ex-dividend is essential to ensuring investors receive a sought-after dividend

Ex-dividend means “without the dividend”. When a stock sells ex-dividend it is trading without the dividend added to its stock price. A simple example can help explain this.

Company A’s stock is selling for $150 per share, and it announces a $5.00 annual dividend that will be paid in quarterly installments. On the ex-dividend date (see below), at the opening of trading, Company A’s stock will be marked down by $1.25 ($5/4 = $1.25).

Any investor buying stock will be purchasing it at the discounted price, $148.75. However, they will not be able to receive the upcoming dividend if they were not a shareholder of record before the ex-dividend date.

In this article, we’ll help investors understand what they need to know about the ex-dividend date including a strategy that traders can use around the ex-dividend date (or ex date).

The Ex-Dividend Date is a Non-Event for Current Shareholders

For many investors, collecting a dividend is something they don’t even think about. They may have owned the stock for years and are accustomed to collecting or reinvesting their dividends on a regular schedule. These buy-and-hold investors don’t concern themselves with missing an ex-dividend date.

However, for an investor looking to take a new position in a dividend stock, it’s important to know when the stock is selling ex-dividend. That’s because an investor has to be a shareholder of record BEFORE the ex-dividend date if they want to receive the dividend.

Key Terms That Dividend Investors Need to Know

There are four key dates that are part of the dividend issuing process.

Record Date – This is the date set by a company’s board of directors once they decide to issue a dividend. An investor must be on the company’s record as a shareholder on this date to receive the dividend. Currently, the record date is set for one day after the ex-dividend date.

Ex-Dividend Date – once the record date is set the stock market will automatically set the ex-dividend date. As mentioned above, this date will typically be two days before the record date.

Declaration Date – this is simply the day the company announces to the public that they are issuing a dividend. In this announcement, the company will list how much the dividend will be, the ex-dividend date and the payment date. Chronologically, this would occur after the record and ex-dividend date have been set.

Payment Date – the payment date is the day when a company distributes dividend payments to shareholders. This is typically at least two weeks after the record date.

Let’s look at an example of how these dates work together.

On August 16, 2018 Tiffany & Co. declared a dividend of $0.55/share (the declaration date) to be paid on October 10 (the payment date). The ex-dividend date was set for September 19, 2018 making the record date September 20, 2018.

Other Terms That Dividend Investors Should Understand

A dividend payment represents a share of a company’s profits. Investors can choose to accept their cash dividends as a direct payment or they can reinvest the dividends to buy additional shares of the company’s stock. When deciding on dividend stocks to buy, investors need to distinguish between the dividend yield and the dividend payout.

A company’s dividend yield is a measure of how much money per share a company pays out as a dividend. The yield is expressed as a percentage. The formula for dividend yield is:

Annual dividend per share/price per share

When it comes to dividend yield higher is not always better. A strong dividend yield in one sector may be weak in another. And since a rising or falling share price affects dividend yield, it is a less reliable measure.

A better metric for many investors is the payout ratio. A dividend payout (or annual dividend per share) is the amount an investor will receive in the form of a dividend on a per share basis. For example, if a company pays out $5 per share on an annual basis, an investor who owns $100 shares of the stock will receive $500 a year in dividend payments.

Some Final Thoughts on the Ex-Dividend Date

Despite the presumption that dividend investing is only for conservative investors, savvy investors frequently buy dividend stocks because the benefits that come from receiving regular dividends help them accomplish other investment objectives. Among these is the benefit that comes from reinvesting dividends to buy more shares which allows compounding to take place. However, if the time comes for an investor to rebalance their portfolio, they may find that they have to swap out one dividend stock for another.

When this happens, they’ll need to know the ex-dividend date for the stock they wish to purchase. By purchasing the stock before the ex-dividend date, they will be considered a shareholder of record by the record date and receive the scheduled dividend. The ex-dividend date is a firm date and once the date arrives, any new investors that buy the stock will not receive the upcoming dividend. Plus, once the ex-dividend date arrives, the stock price of the company will be adjusted downward typically for the same amount as the dividend, although there are times when it is different.

Investors that are wondering when a company is issuing a dividend can usually find this information on a company’s website or other financial site. Dividend-issuing companies are usually very proud of this fact and make the information readily available to investors.