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Ex-dividend refers to a stock that is trading without the right to the upcoming dividend payment. When a firm declares a dividend, it establishes a record date, which is the day shareholders must be listed on the books of the company in order to receive the dividend.Â
The stock is said to be trading ex-dividend after the record date, which means that the buyer of the stock will not get the subsequent dividend payment.
For investors, the ex-dividend notion is crucial since it has an impact on a stock's valuation and predicted return. Before the ex-dividend date, investors must purchase the stock if they want to receive the dividend payout. On the other hand, investors who do not want the dividend payment can decide to buy the shares after the ex-dividend date, when the cost is normally lower.
Consider a scenario in which a business declares that it would distribute a $1 per share dividend to shareholders of record on May 1st. The purchaser of shares sold by a shareholder on or after May 2nd will not be eligible to receive the next dividend payment. This is due to the fact that the stock is ex-dividend, which means that the purchaser will not be shown on the company's books as a shareholder of record on the record date of May 1st.
Since trades take two business days to settle, the ex-dividend date is normally set two business days before the record date. The stock's price will normally decline by the dividend amount on the ex-dividend date as the market takes into account this fact.
For investors, the ex-dividend notion is crucial since it has an impact on a stock's valuation and predicted return. Before the ex-dividend date, investors must purchase the stock if they want to receive the dividend payout. On the other hand, investors who do not want the dividend payment can decide to buy the shares after the ex-dividend date, when the cost is normally lower.
