Will using the ex-dividend date and record date get more dividend returns?

Knowing your ex-dividend date, and record date, will help you get full value from your dividends, but trying to make a quick buck buying and selling around key dividend dates is not worth the risk.

Dividend stocks are an essential part of a good conservative investing philosophy. But there are certain details you should know about the way dividends are paid out. Key to that is understanding the ex dividend date and record date. The ex-date for dividends is a crucial concept for dividend investors to grasp.

What’s the difference between ex-dividend date and record date?

The ex dividend date and record date are closely related and often confused. The ex-dividend date is one business day before the record date when the shares begin to trade without their dividend.

If you buy stocks one day or more before their ex-dividend date, you will still get the dividend. That’s when a stock is said to trade cum-dividend, or with dividend. If you buy on the ex-dividend date or later, you won’t get the dividend. The ex-dividend date is in place to allow pending stock trades to settle. It’s why investors pay close attention to both the ex dividend date and record date when buying shares. Understanding the ex-date for dividends is essential for maximizing your dividend income.

The Growing Power of Dividends Learn everything you need to know in '7 Winning Strategies for Dividend Investors' for FREE from The Successful Investor. The Best Canadian Dividend Stocks to Buy: REITS Canada and other Top Canadian Dividend Stocks.  I consent to receiving information from The Successful Investor via email. I understand I can unsubscribe from these updates at any time.

What’s an ex-dividend date example for investing?

In this ex-dividend date example, a company’s ex-dividend date is February 21, 2023, one business day before the record date of February 22, 2023, meaning investors who bought the stock before February 21 would receive the $0.52 per share dividend payable on February 24, while those who bought on or after February 21 would not.

Let’s say a company’s dividend of $0.52 a share was payable on Friday, February 24, 2023, to those shareholders of record at the close of business on Wednesday, February 22, 2023, the record date.

One business day before that record date, the shares began to trade without their dividend, that is, on the ex-dividend date of February 21, 2023. If you bought this dividend-paying stock one day or more before the ex-dividend date, you still got the dividend (because the shares are trading cum-dividend, or with dividend). But if you bought these shares on the ex-dividend date or later, you would not receive the dividend. Knowing the ex-date for dividends allowed investors to time their purchases to qualify for the payout.

How does the ex-dividend date affect stock prices?

On the ex-dividend date, a stock’s price typically falls by approximately the amount of the dividend.

This price adjustment is a reflection of the stock’s reduced value after the dividend payout. However, the actual price movement can be more complex. While the stock price theoretically should drop by the exact amount of the dividend, real-world factors often intervene. Market sentiment, company news, or broader economic factors can cause the price to fall less than the dividend amount or even rise on the ex-dividend date. Additionally, for stocks with high dividend yields, this price drop can be more noticeable and may affect short-term trading strategies. Long-term investors, however, generally don’t need to be concerned about this temporary price adjustment, as they benefit from both the dividend income and the potential for future stock price appreciation.

What is the dividend capture strategy, and how does it work in your investing strategy?

“Dividend capture” is the trading technique of buying a dividend stock just before the dividend is paid, holding it just long enough to collect the dividend, then selling it. If you can sell it for as much as you paid for it (and that’s not guaranteed), you have “captured” the dividend at no cost, other than the transaction costs.

To do this, you would buy shares in stocks just before the ex-dividend date, so you would be a shareholder of record on the record date, and would receive the dividend. Because the stock falls by the amount of the dividend on the ex-dividend date, the strategy then calls for you to wait for the stock to move back to the price where you bought it at before the ex-dividend date. At this point, you sell the stock for a break-even trade.

How can understanding ex-dividend dates help maximize dividend income?

Knowledge of ex-dividend dates allows investors to time their purchases to qualify for dividend payouts.

What happens if you sell a stock on its ex-dividend date?

If you sell a stock on its ex-dividend date, you will still receive the dividend because you owned the stock before the ex-dividend date.

How often are ex-dividend dates typically set?

Ex-dividend dates are typically set quarterly for most stocks, aligning with the company’s dividend payment schedule, though some companies may have different frequencies.

Can ex-dividend dates affect option prices?

Yes, ex-dividend dates can affect option prices, particularly for deep in-the-money calls, as the stock price is expected to decrease by approximately the dividend amount.

What is the significance of the payment date in relation to the ex-dividend date?

The payment date, which comes after the ex-dividend date and record date, is when the company actually distributes the dividend to eligible shareholders.

How do ex-dividend dates work for mutual funds?

Mutual funds also have ex-dividend dates, but they may distribute dividends more frequently than individual stocks, sometimes monthly or quarterly.

Is using the ex-dividend date as an investing strategy new to you? What do you think of this investing strategy in the current market? Please share your thoughts with us.

This post was originally published in April 2017 and is regularly updated.