What is {term}? Cum Dividend

A stock is cum dividend, which means "with dividend," when a securities buyer will receive a dividend that a company has declared but not paid. A stock trades cum-dividend until the ex-dividend date — after which the stock trades without its dividend rights. Cum dividend describes a share whereby the buyer will receive the next dividend scheduled for distribution.

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What Is A Dividend?

BREAKING DOWN Cum Dividend

Before the announcement of year-end results for companies, dates are set out for the Closure of Register for dividend payments and scrips. These dates will determine the qualification for dividends and scrips. With cum dividend, the seller is selling the right to the share and the rights to the next distribution. Often, this determination results from the timing of the sale rather than the preference of the seller.

To purchase a share cum dividend, the buyer must purchase it by a certain point in the dividend period to complete the recording of the transaction in time to receive the distribution. If the buyer doesn't meet the deadline, the seller may sell the share ex-dividend or without the right to the next distribution. The dates are set based on the declaration date and recording date chosen by the company who issues the stock involved.

There is no specific schedule for the release of dividends, and the dates can vary from company to company. Some companies offer quarterly dividends while others may only pay dividends once or twice a year. While it is not typical, some companies pay dividends monthly.

Declared Dividends

Cum dividend rights include those associated with the next declared dividend. A declared dividend is the amount the board of directors has agreed upon through a motion authorizing the payments and that effectively functions as a liability for the company. As dividends are a portion of a company’s profit, these amounts can fluctuate.

Once a company declares the dividend, it sets a recording date that the buyer must meet the transfer the dividend. Often, a buyer must purchase a share at least two business days before the recording date to get the dividend. This cutoff date is the ex-dividend date or ex-date. If a buyer purchases a share after the ex-date, the seller sells it ex-dividend instead of cum dividend.

Dividend Rights and Purchase Price

Depending on whether a share is available cum dividend or ex-dividend, the seller may adjust the share price to compensate. Sometimes, sellers offer ex-dividend shares with a discount equal to the dividend the buyer will not receive.