The term ex-dividend date refers to the day after which a security no longer carries with it the right to a company's recently declared dividend payment. An investor that acquires a security on or after the ex-dividend date is not entitled to the payment of that dividend.
Investors need to be aware of four important dates, especially if they are buying or holding securities that provide high dividend yields. The ex-dividend date, also known as the ex-date, is the second date in the sequence below:
When a stock reaches its ex-dividend date, the stock symbol is usually accompanied by an "x." In theory, the price of a stock will move up as the ex-dividend date approaches and fall sharply on that day. That's because the seller of the stock remains entitled to the next dividend payment even after the sale, not the purchaser.
On October 1st Company A declares a dividend payable to shareholders on November 12th. As part of that announcement, Company A states that shareholders of record on October 14th are entitled to the dividend.
Since October 14th falls on a Thursday, the ex-dividend date would be on Tuesday, October 12th; which is two business days prior to the record date. Investors purchasing shares of Company A's stock on Monday, October 11th would be entitled to the payment of the dividend, while anyone purchasing shares on October 12th would not be eligible to receive a payment.