Ex-Dividend Date

An ex-dividend date is one of the four important dividend dates, usually set one business day before the record date. It is a deadline; shareholders need to buy the stocks before this date to become eligible for the upcoming dividend payout. It is also called the ex-date.

The documentation pertaining to buying and selling of shares takes place during the period between the ex-date and the record date. Therefore, any transaction accomplished after the ex-date doesn't deprive the buyer of the immediate dividend payment.

• An ex-dividend date is a cut-off date for buying stocks from a company and claiming the next dividend payout.
• The share price declines on the ex-date since the dividend payment amount is deducted from the original stock value. This way, a fair value is offered to new investors.
• The US Securities and Exchange Commission (SEC) enforces the rule of T+1 for determining the ex-date—which occurs one business day prior to the record date.

The ex-dividend date is just an eligibility criterion—stockholders need to procure shares by this date—to receive upcoming cash or stock dividend. If investors fail to purchase equity before the ex-date, they cannot claim the next dividend payment. When that happens, the dividend is credited to the seller.

The chronology of the four dividend dates set forth by a company is as follows:

1. The firm officially declares the dividend on the declaration date.
2. The payment date is disclosed—the date on which the dividend will be distributed.
3. The Board of Directors (BOD) ascertains the record date—it confirms the list of shareholders in the company's books.
4. The ex-dividend date is determined automatically—it is one business day prior to the record date.

On the ex-dividend date, the stock price decreases to adjust the dividend payment amount—to represent the fair valuation of a company's equity—in front of new investors. Therefore, if shareholders sell their shares on or after the ex-date, they will still be liable to get the recent dividend payout.

In addition to the ex-date, the following are three other crucial dividend dates:

1. Dividend Declaration Date: The dividend announcement is made on the day the company reports its earnings. On this date, the company's senior management declares the stock or cash dividend payout.
2. Dividend Record Date: As the name suggests, the record date is the day the company lists out the names of shareholders, who are eligible to receive the next dividend in the company's books.
3. Dividend Payment Date: It is the date on which the company disburses cash or stock dividend payments to their "eligible" stockholders—as announced on the declaration date.

Let us assume, A to Z Ltd. announced the payment of dividends to its shareholders on January 05, 2022. Further, the board of directors confirmed February 21, 2022, as the record date—to enter shareholders' names in the company's books for dividend payment. Also, April 11, 2022, is the dividend payment date. What will be the ex-dividend date?

Solution:
The ex-date will be one business day ahead of the record date. Since the record date is Monday, February 21, 2022, the ex-dividend date will be Friday, February 18, 2022. In 2022, February 19 and 20 fall on Saturday and Sunday, i.e., weekends.

A sample of the dividend calendar of some top companies is given below:

(Source) 

An ex-date is a cut-off date for an investor to purchase company shares and receive an upcoming dividend. On the contrary, the record date is the final date for documenting the names of current shareholders—those eligible for receiving recent dividends.

The US Securities and Exchange Commission (SEC) enforces the rule of T+1 for determining the ex-date. According to this rule, a transaction takes one business day to be shown on records. Therefore, the ex-date precedes the record date by one business day. The record date, on the other hand, is decided by a company's Board of Directors.

This article has been a guide to Ex-Dividend date for stocks & its Meaning. We explain the differences between ex-dividend date vs record date, its calendar, & examples.. You may learn more about Corporate Finance from the following articles -

• Dividends Ex-Date vs Record Date
• Date of Record Dividends
• Dividend Payout Ratio Formula
• Wealth Maximization vs Profit Maximization