Fact Checked

What is an Ex-Dividend Date?

Dale Marshall
Dale Marshall

An ex-dividend date is a date before which shares of stock must be purchased if the purchaser is to be entitled to a dividend that has been declared by the company whose shares are being purchased. In the United States and many other nations, when publicly-held companies pay dividends, they engage in a process that takes time, sometimes months, between the announcement of the dividend and the actual payment. When a company declares a dividend, it states the cash amount of the dividend per share, the date on which the dividend will be paid, and the record date — the date on which shareholders must actually be on the company's records as shareholders to be entitled to the dividend payment.

Even in the computer age, it takes time to record a stock transaction and register new shareholders with the company. To establish uniform requirements for that record-keeping, the ex-dividend date was established. In general, three days is considered the norm for recording transactions and registering new shareholders with the company.

Businessman with a briefcase
Businessman with a briefcase

Once a company has made its dividend declaration, the exchange on which its stock is traded will assign the stock an ex-dividend date. This date is generally two business days before the record date, and stocks for which an ex-dividend date has been declared are noted with the symbol "x" or "-x" on stock tables. When an ex-dividend date is assigned by any of the US exchanges, it has the effect of law, and all parties to that company's stock transactions must fulfill their obligations.

For instance, The Acme Widget Company may, on 15 February, declare a dividend of $1.00 US Dollar (USD) per share to be paid on 15 April to shareholders of record on 15 March. The record date here is 15 March and the "payable date" is 15 April. The stock exchange will set the ex-dividend date as 13 March. Traders who purchase shares of Acme Widget before 13 March are guaranteed to be paid the dividend on 15 April, and those who purchase on or after 13 March will not be entitled to a dividend payment. Finally, investors who sell their shares of Acme Widget on or after the ex-dividend date — 13 March — will receive the dividend on the payable date.

When dividends are of a significant amount, the per-share price of the stock may increase by that amount once the dividend has been declared. The price will generally decline by the amount of the dividend after the ex-dividend date because the company's value has declined by that amount — that is, the resources have been committed to be paid out. These changes in the stock's market price are set by market forces.

Somewhat different rules apply when a company pays a stock dividend — that is, instead of cash, the company issues shares of stock either in itself or a company it owns. When a stock dividend is declared, the ex-dividend date is usually set as the first business day after the payable date. Thus, shareholders who sell after the record date, but before the ex-dividend date, must later also transmit the stock dividend received to the purchaser.

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      Businessman with a briefcase