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When a visitor does well plenty to distribute some of its profits to its stock shareholders, this is known equally paying dividends. Investing in stocks that pay out high dividends can be a great strategy for long-term investors, but dividend payments have a specific timeline they follow that includes important dates yous'll want to pay attending to. These include what's known as the ex-dividend date. If you're looking into dividend stock investments, information technology helps to learn exactly what the various dates mean and how they'll affect your stocks throughout a dividend payment's "lifetime."
What Is an Ex-Dividend Date?
An ex-dividend date is i of several important elements of the dividend payment process that y'all should be familiar with as an investor. Non merely does it determine who'll receive payments from an upcoming dividend, simply information technology also tends to have an outcome on the toll of the stock in question throughout the grade of the process.
To go along things unproblematic, ex-dividend dates are the last date on which you lot tin can buy a stock in order to be considered eligible to receive a part of the upcoming dividend payment — sort of a cutoff date. But to amend empathize what this means, it helps to look at the entire payment process, including several other of import dates. These include:
Declaration Engagement: This is the day when a company declares the details of an upcoming dividend payment. It usually includes the engagement that shareholders will be paid, how much they'll be paid and the engagement by which you lot must become a shareholder to get paid.
Tape Date: The record date is the official cutoff date by which you must be a shareholder in order to receive a portion of the dividend payout. The important thing to keep in mind is that, depending on which marketplace y'all merchandise on, it may take a solar day or more than for an investment to actually go through. In other words, if you wait until the record date to purchase stock, your buy may not get through until the next solar day, and you'll miss the cutoff for dividend payments. This is why the ex-dividend date exists.
Ex-Dividend Engagement: The ex-dividend appointment is the date by which you need to purchase a stock in order to make sure your investment goes through past the tape date. It's often one business day before the record date. It gives the merchandise enough time to fully execute and to authorize you every bit a shareholder. If you purchase a stock past its ex-dividend date, you'll receive a portion of its upcoming dividend payout. If you lot purchase the stock subsequently the ex-dividend date, however, you'll miss out on that upcoming dividend engagement and will demand to wait until the next payment date.
Payment Date: This is the day when the payments of dividends are disbursed to investors.
What Does the Dividend Payout Process Look Like?
To illustrate how the entire process works, let'due south take a look at a real-world instance. Argo Group International (ARGO) announced its quarterly dividend payment on the announcement date of February sixteen, 2021.
The proclamation included the post-obit information about the upcoming payout:
- Payout amount: $0.31 per share
- Ex-dividend appointment: 2/25/2021
- Record date: two/26/2021
- Payment date: 3/12/2021
What does this mean to y'all as an investor? Say you lot already hold stock in ARGO. If that's the case, you lot'll want to hang onto your shares until after the record date if you want to take advantage of getting paid the upcoming dividends.
If you're non yet an investor but are interested in purchasing ARGO shares, then you'll demand to get an official shareholder past February 26. Because your purchase of shares could have a twenty-four hour period or more than to fully execute, you'll want to make sure that you invest past February 25. You'll so receive a payout of $0.31 per share on the upcoming pay date of March 12.
The amount of money you receive from a dividend payment depends on how many shares y'all concord in the visitor. Say, for instance, that you bought 1,000 shares of ARGO by February 25. In that case, your dividend would be calculated as one thousand shares x $.31/share, which equals a $310 dividend payout.
The Effects of Proclamation Dates on Stock Prices
Aside from knowing how much money yous tin expect to make from an upcoming dividend payout, you should too be enlightened of the issue that some of these dates can have on a visitor's 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 well-nigh how the company is doing, for amend or worse. For example, imagine that you'd held stock in a visitor for v years. For each of those years, the company had paid out an annual dividend of $1.00 per share.
If the company all of a sudden announced i year that its upcoming dividends would but pay out $.25 a share, it'd be fair to assume that things hadn't been going and so well. The contrary is also true. If, instead, the visitor announced that it'd be paying out dividends of $2.00 per share one twelvemonth, then this would likely be an indication information technology was doing improve financially than it had been.
Investors may await to a company's declaration as a sort of litmus test for the company's health. For this reason, many companies try to keep their dividends relatively consistent. If a company announces a lower-than-average dividend, information technology might cause investors to sell. If it announces a college-than-average dividend, that'll likely attract more buys — which is ideal as long as the company tin can retain that higher rate going forward.
The Effects of the Ex-Dividend Date 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 engagement, the cost of its stock will usually rise as more than people endeavour to make it on the upcoming dividend payout before it'due south too tardily.
Immediately later on, notwithstanding, the stock'southward cost will generally drop. This is non but because the cutoff date has passed, only besides because the company's value technically decreases due to the money that's about to exist paid out in the dividend payments.
Subsequently a visitor'south ex-dividend date, information technology goes through a period 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 have "gone ex-dividend" and the messages "XD" may appear next to it to indicate this.
Due to these considerations, buying a stock right earlier the ex-dividend engagement isn't necessarily a smart movement unless you're planning to hold onto it for the long haul. You'll likely pay a higher charge per unit for shares that are only going to subtract in value in one case the stock goes ex-dividend, even if you do get a cut of the dividend turn a profit. On the other paw, if you buy later the ex-dividend date, you'll usually be able to buy stocks at a lower price. Even though y'all won't be getting a share of the upcoming dividend, yous'll still have the adventure to receive a portion of the next one, assuming 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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