What is the ex-dividend date?
The ex-dividend dateis one of the four most important dates a dividend investor should know, along with the announcement date, record date and payment date. It is important to understand how the ex-dividend date works and the impact it can have on share prices.
The ex-dividend date of a share is usually set one working day before the record date. The ex-dividend date is the date by which the investor must own the dividend-paying share in order to receive the upcoming dividend payment. If the investor buys shares in the company on or after this date, the investor is not entitled to the upcoming dividend payment and the seller receives the dividend payment instead. Generally, the ex-dividend date for a share is one business day before the record date, which means that an investor who buys the share on the ex-dividend date or later will not be entitled to the announced dividend.
When is the ex-dividend date set?
As a rule, the Board of Directors decides to distribute a dividend. It sets a cut-off date (registration date) for this. On this key date, a check is made to see who is currently registered as a shareholder of the company and therefore also receives a dividend. Once the record date has been set, the ex-dividend date is also determined in accordance with the rules of the stock exchange on which the share is traded. As a rule, the ex-dividend date is one working day before the record date. For example, if a company announces a dividend on May 23 and sets the record date for Monday, May 30, the ex-date would be Friday, May 27, as this is a business day before the record date.
The ex-date is before the record date because when the share is sold, the transaction is not settled until one business day later (T+1 settlement). Assuming the investor sells his share on Friday, May 27, he would still be registered as the owner of the share on Monday, May 30, as the trade has not been completed. Investors must therefore buy a dividend share at least one day before the record date, as the settlement of the trade takes one day. If the investment strategy is geared towards income, knowing the ex-date helps when planning trading entries. However, it should be noted that the share price usually falls by roughly the same amount as the dividend. For this reason, investors generally do not benefit much from buying the share before the dividend payment. However, this depends on many different factors (e.g. location of the company, taxation of the dividend).
What does XD stand for?
A share is traded ex-dividend on and after the ex-dividend date (ex-date). Ex-dividend refers to a share that is traded without the value of the next dividend payment. As buyers are not entitled to the next dividend payment on the ex-date, the share is adjusted downwards by the dividend amount by the stock exchange.
XD is a symbol that indicates that a security is traded ex-dividend. It is an alphabetic qualifier that serves as an abbreviation to tell investors important information about a particular security in a stock price. Sometimes the X alone is used to indicate that the stock is trading ex-dividend. Depending on where the stock is listed, the code letters may vary, as the different news and market data services that provide stock quotes may use different code letters. These symbol letters may appear as part of a display on a broker’s trading platform, in a charting program or in a timely published report.
Other important dividend dates
The ex-dividend date is surrounded by other important dates in the dividend payout process. When it comes to dividends, there are four important dates that investors should keep an eye on:
Announcement date/declaration date: The announcement date (also known as the announcement date or declaration date) is the date on which the Board of Directors of a company announces the next dividend that it will pay out to its shareholders. The announcement also states the ex-dividend price that will be paid to shareholders. This is usually a certain amount of money per share. The announcement also contains the date on which the dividend will be paid (payment date) and the record date by which an investor must hold the share in order to benefit from the dividend.
Registration date/ record date: The record date is the date on which the company determines which shareholders are entitled to receive a dividend. An investor must be entered in the company’s share register on this date in order to receive the dividend.
Ex-dividend date: Once the record date has been determined, the ex-dividend date (or ex-distribution date in the case of funds or trusts) is set based on the rules of the exchange on which the security is traded. As a rule, the ex-dividend date is one working day before the record date.
Payout date: The payout date is the date on which dividend checks are mailed or credited to investor accounts. As the payment date is known in advance, this event should have no impact on the share price.
Special considerations
- If a dividend accounts for 25% or more of the share value, special rules apply for determining the ex-dividend date. In this case, the ex-dividend date is postponed to a working day after the dividend payment.
- Sometimes a company pays a dividend not in cash but in the form of shares – either as additional shares in the company or in a subsidiary that is spun off. The determination of the ex-date for stock dividends may differ from that for cash dividends. It is set on the first working day after the payment of the scrip dividend (and is also after the record date).