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When a company does well enough to distribute some of its profits to its stock shareholders, this is known as paying dividends. Investing in stocks that pay out high dividends tin can be a peachy strategy for long-term investors, but dividend payments have a specific timeline they follow that includes important dates y'all'll desire to pay attention to. These include what's known every bit the ex-dividend date. If you're looking into dividend stock investments, it helps to learn exactly what the various dates hateful and how they'll affect your stocks throughout a dividend payment'due south "lifetime."
What Is an Ex-Dividend Date?
An ex-dividend appointment is 1 of several important elements of the dividend payment process that you should be familiar with equally an investor. Non but does it determine who'll receive payments from an upcoming dividend, simply it also tends to take an result on the cost of the stock in question throughout the course of the process.
To keep things simple, ex-dividend dates are the last date on which you tin buy a stock in order to be considered eligible to receive a function of the upcoming dividend payment — sort of a cutoff date. Simply to meliorate understand what this means, it helps to look at the entire payment procedure, including several other important dates. These include:
Annunciation Date: This is the day when a company declares the details of an upcoming dividend payment. It normally includes the date that shareholders will be paid, how much they'll be paid and the date by which you must go a shareholder to get paid.
Record Date: The record date is the official cutoff engagement by which you must be a shareholder in society to receive a portion of the dividend payout. The of import thing to proceed in heed is that, depending on which market you trade on, information technology may take a mean solar day or more for an investment to actually become through. In other words, if you wait until the record date to buy stock, your buy may not go through until the adjacent day, and y'all'll miss the cutoff for dividend payments. This is why the ex-dividend engagement exists.
Ex-Dividend Date: The ex-dividend engagement is the engagement by which you lot demand to buy a stock in order to make sure your investment goes through past the record engagement. It's often one business twenty-four hours before the tape date. Information technology gives the trade enough time to fully execute and to qualify you as a shareholder. If you lot buy a stock by its ex-dividend appointment, you'll receive a portion of its upcoming dividend payout. If you purchase the stock subsequently the ex-dividend date, all the same, you'll miss out on that upcoming dividend date and will need to wait until the next payment appointment.
Payment Date: This is the day when the payments of dividends are disbursed to investors.
What Does the Dividend Payout Process Look Like?
To illustrate how the unabridged procedure works, allow's take a look at a real-world example. Argo Group International (ARGO) announced its quarterly dividend payment on the annunciation date of February 16, 2021.
The announcement included the following information about the upcoming payout:
- Payout amount: $0.31 per share
- Ex-dividend appointment: 2/25/2021
- Tape date: 2/26/2021
- Payment appointment: 3/12/2021
What does this mean to you every bit an investor? Say you lot already agree stock in ARGO. If that'southward the instance, you'll desire to hang onto your shares until later on the record engagement if you want to have reward of getting paid the upcoming dividends.
If you're not yet an investor just are interested in purchasing ARGO shares, then you'll need to become an official shareholder by February 26. Because your purchase of shares could take a day or more to fully execute, you'll want to brand sure that you invest by February 25. You'll so receive a payout of $0.31 per share on the upcoming pay appointment of March 12.
The corporeality of money yous receive from a dividend payment depends on how many shares you agree in the company. Say, for instance, that you bought 1,000 shares of ARGO past February 25. In that instance, your dividend would be calculated as g shares x $.31/share, which equals a $310 dividend payout.
The Effects of Declaration Dates on Stock Prices
Aside from knowing how much money you can await to make from an upcoming dividend payout, you should also be aware of the consequence that some of these dates can have on a visitor's stock price. This is primarily the instance when information technology comes to the declaration date and the ex-dividend date.
A company'southward announcement engagement can reveal a slap-up deal about how the company is doing, for better or worse. For example, imagine that yous'd held stock in a company for 5 years. For each of those years, the visitor had paid out an annual dividend of $1.00 per share.
If the visitor all of a sudden announced one twelvemonth that its upcoming dividends would only pay out $.25 a share, it'd be off-white to presume that things hadn't been going so well. The reverse is besides truthful. If, instead, the company announced that it'd be paying out dividends of $2.00 per share ane year, and so this would likely be an indication it was doing better financially than information technology had been.
Investors may await to a visitor's annunciation as a sort of litmus test for the company'south health. For this reason, many companies try to keep their dividends relatively consequent. If a visitor announces a lower-than-average dividend, it might cause investors to sell. If it announces a college-than-boilerplate dividend, that'll likely concenter more buys — which is ideal as long as the visitor tin retain that higher rate going forrad.
The Effects of the Ex-Dividend Date on Stock Prices
The ex-dividend engagement also tends to have an upshot on a stock'due south price. In the days leading upwards to a company's ex-dividend date, the toll of its stock will usually rise equally more than people try to get in on the upcoming dividend payout earlier it'southward likewise late.
Immediately after, all the same, the stock's price will generally drop. This is not but because the cutoff date has passed, but also because the company's value technically decreases due to the coin that'south about to be paid out in the dividend payments.
Later on a company'due south ex-dividend date, it goes through a period of time when its shares are for sale without the value of the upcoming dividend included. During this fourth dimension, the stock is said to have "gone ex-dividend" and the letters "XD" may appear side by side to it to bespeak this.
Due to these considerations, buying a stock right before the ex-dividend date isn't necessarily a smart motility unless you're planning to concur onto it for the long haul. You'll likely pay a higher rate for shares that are only going to decrease in value once the stock goes ex-dividend, even if you do get a cut of the dividend profit. On the other hand, if y'all purchase after the ex-dividend date, you lot'll normally be able to purchase stocks at a lower price. Even though you won't be getting a share of the upcoming dividend, y'all'll still accept the run a risk to receive a portion of the adjacent ane, bold you don't sell.
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Source: https://www.reference.com/business-finance/ex-dividend-date-stocks?utm_content=params%3Ao%3D740005%26ad%3DdirN%26qo%3DserpIndex