Category: 

What is an Ex-Date?

Article Details
  • Written By: Toni Henthorn
  • Edited By: W. Everett
  • Last Modified Date: 16 January 2020
  • Copyright Protected:
    2003-2020
    Conjecture Corporation
  • Print this Article

An ex-date, also known as an ex-dividend date, is the date on which a stock or other security sells on the market without any dividends that the company board has declared. The ex-date occurs two business days prior to the date of record, which is the date upon which the company tabulates a list of current stockholders for payment of the dividend. Investors who buy stocks on or after the ex-date will not receive a declared dividend, but investors who buy stocks prior to the ex-date will receive any dividends due to the stockholders. Conversely, sellers of stocks will receive dividends payable to stockholders if they sell the stocks on or after the ex-dividend date. Newspapers usually indicate the ex-date in the stock listings with an x.

Ad

When a company board of directors decides to distribute a dividend, the process involves four key dates. The declaration date is the date on which the company announces that it will issue a dividend. Settlement of stock purchases requires three business days to complete, and the company will not have the name of a new stockholder until three business days from the transaction date. The ex-dividend date clears any confusion that may otherwise exist regarding who receives a dividend when transactions occur between the declaration date and the date of payment. Two business days after the ex-date, the date of record, the company pulls a list of its currently listed stockholders, to whom it subsequently mails the dividend on the date of payment, which is about one week after the date of record.

When a stock trades with the dividend, it trades “cum dividend.” Although an investor profits immediately from the dividend if he purchases the stock before the ex-date, the dividend payment will cause a fairly proportionate decline in the price of the stock after the ex-date. For example, a dividend payment of $10 U.S. Dollars (USD) per share would be accompanied by about a $10 USD drop in the price per share. The actual amount of the decline varies due to differences in tax rates. The immediate profit from the dividend is, therefore, offset to some degree by the drop in security value from the price paid before the ex-dividend date.

The Financial Industry Regulatory Authority (FINRA) is a regulatory entity that oversees transactions between dealers, stockbrokers, and investors. FINRA has applied a different policy to dividends that have a value that is greater than 25 percent of the security value. Under such circumstances, the ex-dividend date is deemed to be the first business day after the date of payment. This rule prevents a situation in which the seller receives the full value of his stock for a sale before the ex-date and also receives a substantial dividend, while the buyer experiences a commensurately large decline in stock value after the ex-date.

Ad

Recommended

Discuss this Article

Post your comments

Post Anonymously

Login

username
password
forgot password?

Register

username
password
confirm
email