If you own stocks or funds, you should be familiar with ex-dividend dates. Also called the ex-date, this date determines when you will get a dividend and whether you get one at all that year. If you want to get the next scheduled dividend on your shares, you must own them before the ex-dividend date. This date is also important to the company, because it gives them a way to determine who is entitled to receive dividends.
Before the ex-dividend date, stocks are referred to as "cum dividend" or with dividend. If you own or buy the stock during the "cum dividend" period, you will be paid the dividend. If you sell your stock before the ex-dividend date, you will not be paid the dividend for that year. After the ex-dividend date, you can sell your shares and get the dividend for the prior year. On the other hand, anyone who buys the stock after the ex-dividend date will not be paid the dividend.
The ex-dividend date is also the date a stock's price often decreases, usually by the amount of the dividend to be paid. Normally, the company doesn't do anything to make this happen. The market just naturally adjusts the price to reflect the declaration of the dividend. By doing this, the decrease in the company's assets from the payment of the dividend is clearly shown. It also helps prevent people from buying just before the ex-dividend date and selling just after it is paid, because the sale after the ex-dividend date would be a loss.
Dividend capture is an investing strategy that attempts to take advantage of the ex-dividend date by collecting the dividend and immediately divesting oneself of the stork. If prices are steadily climbing, this can be an effective, although less than honorable, strategy. If the market is not strong, it can be hard to figure out the timing and the investor risks losing money despite being paid the dividend.
The record date, or date of record, ties into the ex-dividend date, as it is the day by which investors must have registered their ownership of a stock if they want to get the dividend. Registration usually happens automatically if you purchase before the ex-dividend date. The payment date reflects the day that dividend checks are actually mailed to the investor or deposited into their brokerage accounts. The declaration date or announcement day is the day a company announces the next dividend.
When a company decides to declare a dividend, it also decides on a date, the record date, by which a shareholder must own a stock to be paid a dividend. Once the record date is set, the National Association of Securities Dealers sets the ex-dividend date. As a general rule, this date is two business days before the date of record. If you purchase a stock on or after the ex-dividend date, the seller will get the next dividend, not you.