How to Determine the Ex-dividend Date for a Particular Stock
How to Determine the Ex-dividend Date for a Particular Stock-According to any financial expert investing is better than saving. It is something that everyone with a little bit of extra in the bank should do. And when it comes to stock selection, ones that pay out dividends get favor most veteran investors. Why? They reduce the overall risk of one’s portfolio, offer tax advantages, provide a metric for fundamental analysis, and can substantially increase profits. Going by historical data, even during recession periods, dividend stocks usually show growth, as evident by 75% of the returns from the S&P 500 (1980-2019) originating from dividends.
Thus, regarding investors who are on the prowl to rake in significant passive income, investing in publicly traded entities that pay out dividends is always an attractive choice. During the analysis of such companies, prospective savvy investors pay extra attention to a detail called the ex-dividend date.
The Definition of Ex-Dividend Date
What is the ex-dividend date, also known as the reinvestment date? It is the date surrounding the timing of payment of dividends on stocks. It is the time after or when securities get trade without a previously declaring distribution or dividend payout. Not necessarily, but often, the opening value here is the last closing price less the dividend sum.
In other words, the ex-dividend is a term used to describe a stock trading without the value of the upcoming dividend payout. Investors that have gotten said stock before a company’s dividend allocations get specified, meaning its next dividend payout, get entailed to the following payment. If an investor has bought the stock on or after the ex-dividend date. Then he does not have a shareholder’s payout coming. That is the ex-dividend date explained in a nutshell.
The difference between the record date and the ex-dividend one is that the first signifies the cut-off date established by an entity’s board of directors. It determines the shareholders eligible to snag a distribution or dividend.
How to Find the Ex-Dividend Date for a Stock
Typically, companies inform shareholders of dividend payout through the mail. When an entity declares a dividend payment, it is careful to include info such as the amount provided, the payment date, which is the ex-dividend one, and the record date in their announcement.
Those who do not own shares in a dividend-paying publicly-traded business can find information about its upcoming ex-dividend dates on major financial websites. A prime example of one of these that gets favored by many investors is Barrons.com, an American weekly magazine that the Dow Jones & Company publishes. Interested parties can also attain this data via apps, stock market data services, and brokerage platforms.
Note that it is vital to check multiple sources for accuracy, as most websites and services transplant data from one another instead of all of them taking it from the horse’s mouth. Amidst this process, errors can occur.
Factors Affecting the Ex-Dividend Date
As a rule of thumb, a stock exchange’s rules determine the ex-dividend date, and it virtually always gets set within (before) two days of the record one. Per the U.S. Securities and Exchange Commission, this period is one day before the record date.
The gap between the record and the ex-dividend dates is there to facilitate the preparation of all the necessary electronic and physical records mandatory for this process.
As discussed, the record date is when the board of directors notes who owns shares and will get a slice of the divided pie. Remember that following the ex-dividend date. The share price of the dividend-paying security generally drops by the sum of the dividend paid. That reflects the fact that freshly-baked shareholders do not get that payment. Also, paying out in stocks instead of money dilutes earnings, causing a short-term negative impact on the share price. Furthermore, it is essential to jot down that the dividend plays a factor in determining the price of an option. As the changes to a share’s value shall fluctuate ahead of that entity’s ex-dividend date.
Strategies for Investing Around the Ex-Dividend Date
A popular timing-oriented trading tactic that many nifty investors love implementing is buying a stock right before it yields dividends. Then, holding in it a portfolio for the period required to collect this payment and offloading it instantly after. That strategy gets referred to as dividend capture. While on the surface it seems like a terrific idea, it carries with it risks. Like if the shares drop more than the dividend paid, that may cut into net profits. Of course, an investor will want to wait for the price to crawl back to the purchase before selling. Yet, there is always the possibility that it will keep declining. Therefore, this may not be the world’s wisest move, despite what some will say. Moreover, since stock markets are more-or-less efficient. Stocks almost regularly decline in value after an ex-dividend, bringing the entire viability of this approach into question.
Given that dividend-paying stocks do not consistently trade precisely guided by conventional logic or a written formula, it is within this space that dividend capture seeks to profit. That said, executing this scheme carries possible tax consequences and above-average risk. In view of the fact that the margins of these trades are so small. Investors have to pour in dramatic sums of cash to make them profitable, and that in of itself can be super hazardous.
To Wrap Up
For many, one of the most conservative trading strategies is dividend investing. Chiefly due to the payouts that come with this practice supplying a hedge against the market’s inherent risk. For a shareholder to be eligible for a dividend payment. He must be an equity owner on the books, on record, before a company’s ex-dividend date. That is the interval that a public business’ trading price begins to reflect the discounting dividend.
Some traders who think of themselves as clever like to pursue an aggressive trading style called dividend capture, involving attaining dividend stocks, receiving the associated payment, and selling these shares instantly after. Though this rarely works and, in theory. Should never function because a stock’s value declines in correlation to the dividend amount.