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When a company does well enough to distribute some of its profits to its stock shareholders, this is known as paying dividends. Investing in stocks that pay out loftier dividends tin be a neat strategy for long-term investors, simply dividend payments have a specific timeline they follow that includes important dates yous'll desire to pay attention to. These include what's known as the ex-dividend date. If yous're looking into dividend stock investments, it helps to learn exactly what the various dates mean and how they'll affect your stocks throughout a dividend payment'south "lifetime."
What Is an Ex-Dividend Date?
An ex-dividend appointment is one of several important elements of the dividend payment process that yous should be familiar with as an investor. Not only does information technology determine who'll receive payments from an upcoming dividend, simply it also tends to have an outcome on the price of the stock in question throughout the course of the procedure.
To keep things simple, ex-dividend dates are the last date on which you can buy a stock in club to exist considered eligible to receive a part of the upcoming dividend payment — sort of a cutoff date. Merely to better sympathise what this ways, it helps to look at the entire payment process, including several other important dates. These include:
Declaration Date: This is the 24-hour interval when a company declares the details of an upcoming dividend payment. It ordinarily includes the date that shareholders will be paid, how much they'll exist paid and the engagement by which you must go a shareholder to get paid.
Record Date: The record engagement is the official cutoff appointment by which you must exist a shareholder in guild to receive a portion of the dividend payout. The important thing to keep in mind is that, depending on which market you trade on, it may take a day or more than for an investment to actually go through. In other words, if you expect until the record date to buy stock, your purchase may not go through until the next twenty-four hour period, and you'll miss the cutoff for dividend payments. This is why the ex-dividend engagement exists.
Ex-Dividend Engagement: The ex-dividend appointment is the appointment by which you need to buy a stock in order to brand sure your investment goes through by the tape date. It's often one business organization day before the record date. It gives the trade enough fourth dimension to fully execute and to qualify y'all as a shareholder. If you buy a stock by its ex-dividend date, you'll receive a portion of its upcoming dividend payout. If you purchase the stock afterwards the ex-dividend date, however, you'll miss out on that upcoming dividend date and volition demand to await until the next payment engagement.
Payment Date: This is the solar day when the payments of dividends are disbursed to investors.
What Does the Dividend Payout Process Look Similar?
To illustrate how the entire procedure works, let's take a expect at a real-earth example. Argo Group International (ARGO) announced its quarterly dividend payment on the declaration appointment of February 16, 2021.
The declaration included the following information virtually the upcoming payout:
- Payout amount: $0.31 per share
- Ex-dividend date: 2/25/2021
- Record date: 2/26/2021
- Payment date: three/12/2021
What does this hateful to yous as an investor? Say you already concord stock in ARGO. If that'south the case, you'll want to hang onto your shares until after the tape date if you want to have advantage of getting paid the upcoming dividends.
If you're non however an investor but are interested in purchasing ARGO shares, then y'all'll need to become an official shareholder by Feb 26. Because your purchase of shares could take a day or more to fully execute, you'll desire to make sure that y'all invest by February 25. You'll then receive a payout of $0.31 per share on the upcoming pay engagement of March 12.
The amount of money you receive from a dividend payment depends on how many shares you concord in the company. Say, for instance, that you bought 1,000 shares of ARGO past February 25. In that case, your dividend would be calculated equally 1000 shares x $.31/share, which equals a $310 dividend payout.
The Effects of Declaration Dates on Stock Prices
Aside from knowing how much money you can expect to brand from an upcoming dividend payout, you lot should besides be enlightened of the effect that some of these dates can have on a company'due south stock price. This is primarily the case when information technology comes to the declaration date and the ex-dividend date.
A company's announcement date can reveal a great deal about how the company is doing, for better or worse. For instance, imagine that you'd held stock in a visitor for five years. For each of those years, the company had paid out an annual dividend of $1.00 per share.
If the company of a sudden announced 1 year that its upcoming dividends would only pay out $.25 a share, it'd exist fair to assume that things hadn't been going so well. The opposite is also true. If, instead, the company announced that it'd be paying out dividends of $two.00 per share one year, then this would likely exist an indication it was doing ameliorate financially than it had been.
Investors may look to a company'due south declaration as a sort of litmus test for the company'south health. For this reason, many companies try to proceed their dividends relatively consistent. If a company announces a lower-than-average dividend, it might crusade investors to sell. If it announces a higher-than-average dividend, that'll likely attract more buys — which is platonic as long every bit the company can retain that higher rate going forrard.
The Effects of the Ex-Dividend Appointment on Stock Prices
The ex-dividend date also tends to have an effect on a stock's price. In the days leading up to a company's ex-dividend date, the cost of its stock volition unremarkably rise equally more people endeavor to arrive on the upcoming dividend payout before it's too belatedly.
Immediately later on, however, the stock'due south toll will generally drib. This is non just considering the cutoff date has passed, but also because the company's value technically decreases due to the money that'south about to be paid out in the dividend payments.
Later on a company's ex-dividend appointment, it goes through a menses of time when its shares are for auction without the value of the upcoming dividend included. During this fourth dimension, the stock is said to accept "gone ex-dividend" and the messages "XD" may appear side by side to it to point this.
Due to these considerations, buying a stock correct before the ex-dividend date isn't necessarily a smart motion unless you're planning to hold onto it for the long booty. You lot'll likely pay a higher charge per unit for shares that are only going to decrease in value once the stock goes ex-dividend, even if you do become a cut of the dividend turn a profit. On the other paw, if yous buy after the ex-dividend engagement, you'll usually be able to buy stocks at a lower price. Fifty-fifty though you won't be getting a share of the upcoming dividend, yous'll still have the chance to receive a portion of the next one, bold you don't sell.
Source: https://www.reference.com/business-finance/ex-dividend-date-stocks?utm_content=params%3Ao%3D740005%26ad%3DdirN%26qo%3DserpIndex
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