DEFINITION of Ex-Distribution
Ex-distribution refers to a security or investment that trades without the rights to a specific distribution, or payment. When an ex-distribution investment, such as a mutual fund or income trust, commences trading on an ex-distribution basis, the seller (or 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.
BREAKING DOWN Ex-Distribution
For example, assume a mutual fund with a net asset value per share (NAVPS) of $10 declares an allocation of 50 cents. On the ex-distribution date, the NAVPS of the fund will be $9.50, since the fund units are now trading without the rights to the distribution. This is similar to the decline in a stock when it commences trading on an ex-dividend basis. A mutual fund trading on an ex-distribution basis is indicated in transaction tables in newspapers by the symbol d.
Ex-Distribution vs. Ex-Dividend
Ex-distribution is similar to ex-dividend. When a company declares a dividend, it sets a record date when you must be on the company's books as a shareholder to receive the dividend. If you purchase a stock on its ex-dividend date or after, you will not receive the next dividend payment. Instead, the seller gets the dividend. If you purchase before the ex-dividend date, you get the dividend.
On Sept. 8, 2017, Company XYZ declares a dividend payable on Oct. 3, 2017, to its shareholders. XYZ also announces that shareholders of record on the company's books on or before Sept. 18, 2017, are entitled to the dividend. The stock would then 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 on 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 may fall by that amount on the ex-dividend date.
Sometimes a company pays a dividend in the form of stock rather than cash. The stock dividend may be additional shares in the company or a subsidiary being spun off. The procedures 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).