If you are starting to invest in dividend paying stocks, then you are finally starting to see some dividends. You should see them coming in on a monthly basis if you have chosen to invest in stocks that pay dividends monthly. However, most stocks will pay out distributions on a quarterly or semi-annual basis. If you have decided to stagger your dividend payments, you can effectively create a dividend portfolio that will pay each month. There are even stocks that only pay dividends once a year. That is why it is important to know when the pay date is for your dividends and when the dividend ex date is. You need to know if you are getting a dividend, when you have to purchase the stock to get the dividend and when you will receive the cash from a dividend in addition to information about the dividend yield formula that many investors focus too much on.
What is a Dividend Ex Date?
There are three important dates to know when you are looking at the dividend schedule of a stock; the declaration date, the ex-date and the payable date. There is also a record date but it is not as important. There are investors that only focus on the payable date and do not even know what the ex-date is. You might have noticed that right before a dividend is paid a stock price will begin to inch up. That is because there are investors that buy the stock just for the dividend and dump it right after instead of participating in passive dividend income. They are timing the dividend dates just to get the distribution and once they have it, they will sell the stock. After the dividend is paid, you will usually see the stock price drop back to around where it was before the dividend was paid. Here is an explanation of what happens.
- The Declaration Date: The company will declare that they are paying a dividend and file the appropriate paperwork with the details.
Traders will begin to purchase the stock. Traders that do not know what they are doing will keep buying the stock through the ex date right up until the payable date.
- The Ex Date: This is the date where the stock trades without the dividend, hence the name ex-dividend date.
- The Record Date: The company will take a count of all investors who were holding the stock before this date and count them as eligible to receive the previously declared dividend.
Experienced traders will dump the stock after the ex-date and the price will drop slightly, usually in the amount of what the dividend was. Inexperienced traders will hold the stock until the payable date with their dividend stock investing, thinking that they have to have the stock until then to get the dividend.
- The Payable Date: The company will pay the declared dividend to investors who were holding the stock before the ex-date and the cycle will continue at the next declaration date.
Did you get that? The ex-date is the most important date in terms of deciding whether you will receive the dividend or not. The second most important date is the payable date, so that you know when you are receiving a dividend. But the declaration date is also important so that you know if a dividend will be paid at all.
Dividend Ex-Date Example
This is a shot from Morningstar that lists the dividend information for a large company. As you can see they declared their dividend in July. The ex-date was not until August. And if you click on performance, then dividends and splits, you will see that the payable date is in September. So if you had purchased this stock, in order to get the dividend, you will need to purchase before the 26th of August. You are free to sell on August 26th or after and you will still receive the cash dividend in September.
Quick note: Some dividends are paid in a mix of cash and stock and some are only stock. I have a few fractional shares from a dividend payment because I forgot to look at the ex-date.