Ex-Distribution

What Is Ex-Distribution?

A stock or any other asset is termed ex-distribution if it is sold without the right of the new owner to collect a specific scheduled payment, such as a dividend. That right belongs to the previous owner and the price is adjusted accordingly.

When an ex-distribution investment, such as a mutual fund or an income trust, starts trading on an ex-distribution basis, the seller (that is, the previous owner) rather than the buyer is entitled to receive the distribution.

On the ex-distribution date, the security will generally fall in price by an amount equal to the dollar amount of the distribution.

Key Takeaways

  • Ex-distribution is an investment, such as a mutual fund or income trust, that trades without the rights to a particular distribution or payment.
  • The distribution will be paid instead to the seller.
  • Typically, the stock price will decline by an amount equal to the amount of the distribution on the ex-distribution date. 

How Ex-Distribution Works

Assume a mutual fund with a net asset value per share (NAVPS) of $10 declares an allocation of 50 cents per share. On the ex-distribution date, the NAVPS of the fund will be $9.50 because the fund shares are now trading without the rights to the distribution.

A mutual fund trading on an ex-distribution basis is indicated in transaction tables in newspapers by the symbol d.

A distribution and a dividend are virtually the same thing. Both are payments to shareholders of a portion of a corporation's profits.

Ex-Distribution vs. Ex-Dividend

Ex-distribution is similar to ex-dividend. Distributions and dividends are both payments to a corporation's shareholders of a share of the profits. The difference is in the terminology used by two types of corporations. C-corporations pay dividends while and S-corporations pay distributions.

Therefore, when a company declares a dividend or a distribution, it sets a date when a shareholder must be on the company's books to receive the payment. If you purchase a stock on or after its ex-dividend date, you will not receive that payment. Instead, the seller gets it. If you purchase before the ex-dividend date, you get the dividend.

Ex-Dividend Example

On Sept. 8, 2020, Company XYZ declares a dividend payable on Oct. 3, 2020, to its shareholders. XYZ announces that shareholders of record on the company's books on or before Sept. 18, 2020, are entitled to the dividend.

The stock will go ex-dividend one business day before the record date.

In this example, the record date falls on a Monday. Excluding weekends and holidays, the ex-dividend is set one business day before the record date or the opening of the market. In this case, that's the preceding Friday.

This means anyone who bought the stock on Friday or after would not get the dividend. With a significant dividend, the price of a stock will probably fall by that amount on the ex-dividend date.

Special Considerations

A company may pay its shareholders a dividend in the form of stock shares rather than cash. The stock dividend may be additional shares in the company or shares of a subsidiary that is being spun off.

The procedure for stock dividends may be different from cash dividends. The ex-dividend date is set the first business day after the stock dividend is paid (and is also after the record date).

Article Sources

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  1. Business Econ. "Dividends and Distributions - Use in the Proper Context." Accessed July 1, 2021.