When you purchase a stock, knowing the ex-dividend date helps you determine whether you will receive dividends for that stock. If you purchase the stock after the ex-dividend date, the dividend is paid to the seller and you will not be eligible for dividends until the next payment date.
Determining the Ex-Dividend Date
Each stock exchange establishes rules for the date of record and the ex-dividend date. The date of record is the date on which the company will consider everyone on its books as holders of the stock. On most exchanges, the ex-dividend date occurs two business days prior to the date of record.
For example, if the date of record falls on a Thursday, the ex-dividend date will fall on the Tuesday before it. However, if the date of record lands on a Tuesday, the ex-dividend date because the preceding Friday.
Why Ex-Dividend Dates are Important
Dividends provide value to shareholders and therefore represent a significant source of income. If you purchase a stock after its ex-date, you lose the right to collect the dividend even though you will hold the stock on the date of record. In newspapers and online, you can note whether a stock has gone ex-dividend by the "X" recorded by its name. Investors can also find dates by searching for the stock at Dividend.com.
When Ex-Dividend Date Rules Don't Apply
Sometimes, usually because the stock price is especially high, the ex-date does not occur until after the record date. In other words, the buyer of the stock will receive the dividend as long as he or she holds the stock on the ex-date. On most exchanges, this exception only applies when the dividend paid exceeds 25 percent of the stock price.
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