What is Ex Dividend Date & How to Find Ex Dividend Date?

Different goals drive each investor’s entry into the stock market. A salaried individual might aim to multiply a portion of their savings, while another person may simply seek long-term investments for retirement funding. The remaining lot consists of professional investors who depend on stock market income as livelihoods.

Invest in stocks from companies that experience high product demand, maintain a stable business and primarily offer regular dividends to their shareholders. Additionally, allocate investments towards multiple dividend-offering firms for two objectives: establishing an ongoing income source and constructing a future fund through stock price appreciation.

A company’s decision to offer dividends involves significant complexities: notably, the potential impact on your dividend yield should you sell all or part of your holdings at a later point. Some investors strategically invest in a company just prior to its impending dividend announcement; they then promptly sell their shares upon receiving the declared amount. For investors seeking dividend returns, understanding key jargon, particularly the ex-dividend date—is paramount to capitalizing on swift profit opportunities. Read on to learn more about what is ex dividend date and how to find it.

What is the Ex Dividend Date?

You must be wondering what is ex dividend date. We typically refer to the ex dividend date as the point in time when a company’s stock buyer no longer qualifies for dividend payout.

Let us first delve into the concept of the ex dividend date, while also taking a comprehensive glance at its impact on the stock market.

After you purchase a company’s shares on the stock market, they only credit to your demat account after two trading days (T+2). Specifically, this implies that if you were to buy some company’s shares on a Monday; those same purchased shares would not reflect in your account until Wednesday at the earliest. Furthermore – it is worth noting: only once these credited transactions occur – does your name enter into that particular corporation’s shareholders register.

Now that you possess an understanding of the entire stock market settlement process, let’s delve into a specific example to enhance your comprehension of the ex-dividend date concept.

Understanding the Ex-Dividend Date

Typically, a company rewards its shareholders for investing in its stock or equity shares by paying them dividends; these are usually cash payments. As companies generate profit – an action that results in the accumulation or preservation of those profits within an account known as retained earnings – some choose to reinvest this reserve back into the company. However, others opt for a different strategy. They distribute part of these retained earnings among their shareholders through dividend payouts. Your broker’s trading platform may display an ‘XD’ footnote and suffix appended to the stock’s ticker symbol, denoting it is trading ex dividend.

Understanding the ex dividend date necessitates comprehension of the stages companies undergo in dividend payment to their shareholders. The following represent four key dates within this process:

• Declaration Date: The declaration date signifies the company’s announcement of its intention to issue dividends in the forthcoming months. Typically, the share price tends to increase following this announcement.
• Record Date: The ex dividend date and record date is linked to the company identifying its shareholders and determining eligibility for dividend distribution.
• Ex-dividend date: The ex-dividend date marks the finalization by the company of the shareholders entitled to receive the dividend.
• Payable date: Termed the payment date, this is when shareholders receive their dividend payments.

Impact of Ex-dividend Date on Share Prices

Investors must purchase a company’s shares by the ex-dividend date, their next dividend payment enjoyment hinges on it. Consequently, those days leading up to the ex-dividend date are crucial for these particular investors.

In most cases, the value of a stock surges proportionately during this period when it carries its dividend. This surge occurs because an organisation’s declaration of dividends on its stocks amplifies their demand in the open market – thus elevating their price too. The rate at which an organisation announces its dividend determines the magnitude of such share price growth. If dividends are small, price fluctuation would be in tandem and vice versa.

For instance, a company declares a 20% dividend on its par-value stocks, and in response, the market price also escalates by roughly 20%.

On the contrary, stocks’ prices decrease proportionally to the dividend amount or rate on their ex-date; this occurs as they shed their held-up dividend value. Consequently, such stocks transition into trading ex-dividend. without the dividend value.

Consequently, investors opting for the purchase of a company’s equity shares on the ex-date can secure them at a discounted effective rate.

How to Find the Ex Dividend Date?

Having answered the question, “What does the ex-dividend date mean? “—let us now delve into how we can find the ex dividend date.

A company typically declares a dividend and usually includes notification of the ex-dividend date, as well as the record date. Therefore, even novice investors should have little difficulty finding the ex-dividend date.

Another method for determining the ex-dividend date exists. By adhering to our stock exchange settlement process of T+2 days and considering an Indian stock market scenario, we can always predict that the ex-dividend date will precede the record date. Therefore, if a dividend-paying company declares its record date as August 06, 2020, correspondingly, this would establish August 05, 2020, as their stipulated ex-dividend day.

Difference Between Ex-Dividend and Ex-Dividend Date

The definition of ex dividend differs from the ex dividend date. If you buy a stock after the ex-dividend date, it will become ex dividend, which means it will not pay dividends in the future. When you acquire a stock that has gone ex dividend, you forfeit the next dividend payment, which will instead be paid to the stock’s seller. 

How do you select your buying strategy based on ex-dividend stocks? If you missed the ex-dividend date, there is still an opportunity to benefit in the short term since the price of the ex-dividend stock will fall by the amount of the missed dividend, allowing you to acquire the shares at a discount. 

For instance, if a company’s share price is 1000 and it declares a 100 dividend per share, the share price will fall by 100 following the ex-dividend date. Investors who opt to buy equity shares in a corporation on or after the ex-date can do so at an effective discount rate and make the same profit as if they paid the dividend amount. 

Conclusion

Concerning dividends, both existing and potential investors should prioritize understanding two critical dates: the ex dividend date and the record date. As demonstrated earlier, if your investment strategy involves purchasing shares primarily for dividend receipt, it’s crucial to do so before the ex-dividend date.

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