A:

If you sell before the ex-dividend date you will not receive a dividend from the company. The ex-dividend date is the date that the company has designated as the first day of trading in which the shares trade without the right to the dividend. If you sell your shares on or after this date, you will still receive the dividend.

If a shareholder is to receive a dividend, he or she needs to be on the company's records on the date of record. When you purchase shares, your name does not automatically get added to the record book- this takes about three days from the transaction date. Therefore, if the date of record is August 10, you must have purchased the shares on August 7 to receive a dividend. This would make August 8 the ex-dividend date, as it is the date directly following the last date on which you could get a dividend.

However, this is not necessarily a negative thing. Remember that a company's shares will trade for less than the dividend amount on the ex-dividend date than they did the day before. For example, imagine shares in a company are trading at $50 and the company announces a dividend of $5. Investors who hold the shares past the ex-dividend date will receive the $5; investors who sell before the ex-date will not. But all is not lost: shares in the company will fall by roughly the amount of the dividend, to $45, or there will be an arbitrage opportunity in the market. If shares didn't fall as a result of dividend payments, everyone would simply buy the shares for $50, get the $5, and then sell their shares after the ex-dividend date, essentially getting $5 free from the company.

For more information, read Declaration, Ex-dividend And Record Date Defined and How And Why Do Companies Pay Dividends?

RELATED FAQS
  1. How can I find out the ex-dividend date for a stock's dividend?

    Learn about the various information sources from which investors can obtain information about upcoming ex-dividend dates ... Read Answer >>
  2. How can I find out what date(s) I am supposed to be entitled to ex-dividends?

    Understand the various dates associated with payment of stock dividends and specifically how the determining ex-dividend ... Read Answer >>
  3. If a company moves its dividend record date forward, does the ex-dividend date change ...

    When a dividend is declared, there are three important dates for investors: the dividend payable date, the dividend date ... Read Answer >>
  4. How is the ex-dividend date for a dividend on a stock determined?

    Review the important dates concerning dividend payments and learn how the ex-dividend date is determined when a company declares ... Read Answer >>
Related Articles
  1. Investing

    Dissecting Declarations, Ex-Dividends and Record Dates

    Understanding the dates of the dividend payout process can be tricky. We clear up the confusion.
  2. Investing

    Ex-Dividend Date

    Not too sure what an ex-dividend date is? Find out here and learn how and when you can take advantage of a stock's dividend.
  3. Investing

    What is a Record Date?

    The date established by an issuer of a security for the purpose of determining the holders who are entitled to receive a dividend or distribution.
  4. Investing

    How Dividends Affect Stock Prices

    Find out how dividends affect the price of the underlying stock, the role of market psychology and how to predict price changes after dividend declaration.
  5. Trading

    Understanding How Dividends Affect Option Prices

    Learn how the distribution of dividends on stocks impacts the price of call and put options, and understand how the ex-dividend date affects options.
  6. Investing

    Understanding Taxes on Mutual Funds Dividends

    Learn about the basics of mutual fund dividend taxation, including how and why mutual funds pay dividends and when different tax rates apply to dividend income.
  7. Investing

    Dividend Facts You May Not Know

    Discover the issues that complicate these payouts for investors.
  8. Investing

    Make Ex-Dividends Work For You

    Find out how to keep your dividends out of the tax man's hands.
  9. Investing

    Due Diligence On Dividends

    Understanding dividends and how they work will help you become a more informed and successful investor.
  10. Investing

    The Truth About Dividends

    Dividends may seem like money for nothing, but they have several implications.
RELATED TERMS
  1. Ex-Dividend

    A classification of trading shares when a declared dividend belongs ...
  2. Record Date

    The cut-off date established by a company in order to determine ...
  3. Unpaid Dividend

    A dividend that is owed to stockholders of record but has yet ...
  4. Dividend Rollover Plan

    An investment strategy in which a dividend-paying stock is purchased ...
  5. Payment Date

    The date on which a declared stock dividend is scheduled to be ...
  6. Cum Dividend

    When a buyer of a security is entitled to receive a dividend ...
Hot Definitions
  1. Davos World Economic Forum

    The annual meeting of the World Economic Forum hosted at Davos—a small ski town in Switzerland—in January each year is among ...
  2. Smart Home

    A convenient home setup where appliances and devices can be automatically controlled remotely from anywhere in the world ...
  3. Efficient Frontier

    A set of optimal portfolios that offers the highest expected return for a defined level of risk or the lowest risk for a ...
  4. Basis Point (BPS)

    A unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly ...
  5. Initial Public Offering - IPO

    The first sale of stock by a private company to the public. IPOs are often issued by smaller, younger companies seeking the ...
  6. Border Adjustment Tax

    A tax levied on goods based on where they are sold – exported goods are exempt from tax; those imported and sold in the ...
Trading Center