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 do dividend distributions affect additional paid in capital?

    Find out how the issuance of dividends can affect the additional paid-in capital subaccount of a company's balance sheet; ...
  2. When does the holding period on a stock dividend start?

    Understand the difference between qualified and unqualified stock dividends, and when the holding period for qualified dividends ...
  3. What is the average annual dividend yield of companies in the retail sector?

    Find out more about the dividend yield ratio, how to calculate a company's dividend yield and the average dividend yield ...
  4. What kind of companies in the utilities sector offer the most stable dividends for ...

    Discover three of the most solid companies operating in the utilities sector that offer the most stable dividends to investors ...
RELATED TERMS
  1. Record Date

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

    A distribution of a portion of a company's earnings, decided ...
  3. Target Payout Ratio

    A target payout ratio is a measure of what size a company's dividends ...
  4. Policyholder Dividend Ratio

    The policyholder dividend ratio is a measurement of the profitability ...
  5. Paid-Up Additional Insurance

    Additional whole life insurance that a policyholder purchases ...
  6. Accelerated Dividend

    Special dividends paid by a company ahead of an imminent change ...

You May Also Like

Related Articles
  1. Trading Strategies

    Dividend Versus Buyback: Which Is Better?

  2. Trading Strategies

    Microsoft's Game of Catch-Up With The ...

  3. Fundamental Analysis

    American Express Returns Vs. DJ Industrial ...

  4. Stock Analysis

    Exxon Positioned To Outperform Competitors

  5. Professionals

    The Most Popular ETFs with Financial ...

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!