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 >>
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. 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.
  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. 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.
  6. Investing

    Dividend Facts You May Not Know

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

    How To Use The Dividend Capture Strategy

    Dividend capture strategies provide an alternative investment approach to income seeking investors.
RELATED TERMS
  1. Record Date

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

    A dividend that is owed to stockholders of record but has yet ...
  3. Payment Date

    The date on which a declared stock dividend is scheduled to be ...
  4. Dividend Rollover Plan

    An investment strategy in which a dividend-paying stock is purchased ...
  5. Cum Dividend

    When a buyer of a security is entitled to receive a dividend ...
  6. Declaration Date

    1. The date on which the next dividend payment is announced by ...
Hot Definitions
  1. Operating Cost

    Expenses associated with the maintenance and administration of a business on a day-to-day basis.
  2. Money Market

    A segment of the financial market in which financial instruments with high liquidity and very short maturities are traded. ...
  3. Block (Bitcoin Block)

    Blocks are files where data pertaining to the Bitcoin network is permanently recorded.
  4. Fintech

    Fintech is a portmanteau of financial technology that describes an emerging financial services sector in the 21st century.
  5. Ex-Dividend

    A classification of trading shares when a declared dividend belongs to the seller rather than the buyer. A stock will be ...
  6. Debt Security

    Any debt instrument that can be bought or sold between two parties and has basic terms defined, such as notional amount (amount ...
Trading Center