Loading the player...

What is an 'Ex-Dividend'

Ex-dividend is a stock trading term that specifies when a declared dividend is owned by the seller rather than the buyer. The term literally means "without the dividend" because once a share trades ex-dividend, the buyer no longer has the right to receive the most recently declared dividend.

BREAKING DOWN 'Ex-Dividend'

A stock trades ex-dividend on or after the ex-dividend date (ex-date). If a trader purchases a stock on its ex-dividend date or after, he or she will not receive the next dividend payment. After the ex-date has been declared, the stock will usually drop in price by the amount of the expected dividend.

When a company decides to declare a dividend, its board of directors establishes a record date. This is the date when a person must be on the company’s record as a shareholder to receive the dividend payment. Once the record date is set, the ex-dividend date is set according to the rules of the stock exchange on which the stock is traded. The ex-dividend date is typically set for two business days prior to the record date. If a company issues a dividend in stock instead of cash, the ex-dividend date rules are slightly different. With a stock dividend, the ex-dividend date is set on the first business day after the stock dividend is paid out.

Walmart Inc., for example, announced in a press release dated March 7, 2018, that its stock would begin trading ex-dividend on March 8. Meanwhile, the record date was set as March 9. The firm had previously declared a dividend payment of $0.52 per share scheduled for April 2, so shareholders who purchased Walmart stock prior to the ex-date of March 8 and were still holding as of March 9 were eligible for the cash payment.

Why the Ex-Dividend Date Is Important

Investors need to buy the dividend-paying stock at least two days before the record date, since trades take two days to settle. Since the ex-dividend date is usually set two business days prior to the record date, investors need to own the stock one day before the ex-dividend date to receive the dividend.

Stock Price Movement on the Ex-Dividend Date

While the stock price typically drops by the amount of the dividend on the ex-dividend date, there is no guarantee that this will happen. Traders usually price any dividend distribution into the stock price during the normal course of business to reflect the company's decreased total assets. This makes it very difficult for individuals to profit by buying before the ex-dividend date and quickly selling thereafter.

Other Important Dividend-Related Dates

There are two other important dates related to dividend payments.

The declaration date, also known as the announcement date, is the date when a company's board of directors announces a dividend distribution. This is the least important date, as it does not affect who receives the dividend in the way that the ex-dividend date does.

The payment date is the date when dividend checks are mailed out or credited to investor accounts.

RELATED TERMS
  1. Declaration Date

    The declaration date is the date on which a company announces ...
  2. Book Closure

    Book closure is a time period during which a company will not ...
  3. Ex-Date

    The ex-date, or ex-dividend date, is the date on or after which ...
  4. Dividend Rollover Plan

    A Dividend Rollover Plan is an investment strategy in which a ...
  5. Ex-Distribution

    Ex-distribution refers to a security or investment that trades ...
  6. XDIS

    XDIS is a symbol used on the consolidated tape to indicate a ...
Related Articles
  1. Investing

    Declarations, Ex-Dividends and Record Dates

    Understanding the dates of the dividend payout process can be tricky. We clear up the confusion.
  2. 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.
  3. Investing

    How to use the dividend capture strategy

    Learn how to implement the dividend capture strategy, an aggressive, income-focused stock trading strategy investors can use to increase equity profits.
  4. Investing

    How Dividends Affect Stock Prices

    Find out how dividends affect the underlying stock's price, the role of market psychology, and how to predict price changes after dividend declarations.
  5. Investing

    Capital One Trades Ex-Dividend Wednesday (COF)

    Capital One will send its dividend payment on Nov. 25 to shareholders of record as of Nov. 14.
  6. Investing

    Dividends Still Look Good After All These Years

    Find out how this "first love" still holds its bloom as it ages.
  7. Investing

    Best Buy Stock Trades Ex-Dividend Tuesday (BBY)

    Best Buy will send its dividend payment on Dec. 29 to shareholders of record as of Dec. 8.
  8. Investing

    WMT: Wal-Mart Dividend Analysis

    Wal-Mart raised its dividend for the 43rd consecutive year, despite losing over 25% of its market value in 2015, and its dividend remains healthy in 2016.
  9. Investing

    Put Dividends to Work in Your Portfolio

    Find out how a company can put its profits directly into your hands.
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. Selling Shares Before the Ex-Dividend Date

    Selling a stock before the ex-dividend date will most certainly affect whether or not you receive a dividend from the company. Read Answer >>
  3. How and when are stock dividends paid out?

    A dividend is determined quarterly after a company finalizes its income statement. Dividends are paid either by check or ... Read Answer >>
  4. Is Dividend Payment Shown in Shareholder's Equity?

    When is a dividend payment recognized in the shareholders equity portion of the balance sheet? Read Answer >>
  5. 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 ... Read Answer >>
Trading Center