What is Ex-Dividend Date? Know All About it Here

Introduction

If you have held a share in any listed company then you must be familiar with the word dividend. 

In simple terms, a dividend is the reward, cash or any other bonus share that a company gives to its shareholders. Each shareholder is considered to be the owner of the company which has some portion of the total share capital in the company. Therefore, each equity holder holds a right to get a share in the profits after the expenses or interest paid. So, when is that dividend declared for the shareholders or what are its familiar terms like ex dividend date or record date.

Meaning of ex dividend date

Investors want to invest in those companies who provide stable dividends over the years. Some investors also invest in companies which decide to offer dividends and sell them after they get their dividend to benefit from the quick profit-making opportunity. When a company declares a dividend, there is a rule by SEBI on how these dividends will be distributed and to whom based on the dividend ex date.

What is ex date for dividend declaration? The ex date for dividend will determine which shareholders will get the announced dividend of any company on the specified date. This date is usually set one or two days before the record date. You must have the stock of a company on this record date to be eligible for the dividend. 

What is ex date in dividend payment, this whole process is explained in 4 steps:

1. Declaration Date

The declaration date is also called the announcement date when a company announces that it will be issuing a dividend in the coming months and the amount it will distribute to its equity holders. A company needs to determine which shareholders shall receive dividend payments because stocks of a company are traded throughout business days with shareholders changing every day. Generally, the share price rises after such an announcement because of the positive news from the company and demand for that stock increases in the market.

       2. Record Date

This date will help the company to find the eligible shareholders who are entitled to receive the dividend on the announced date. The shareholders at the end of the record date will become eligible for the dividend. To get the benefit in the short term, the investor should purchase the stock of the company two days before the record date because the trade cycle is T+2 days which means that it will take two business days to reflect in the company’s records. 

      3. Ex-dividend date

The dividend ex date means the date when the company will finalize its list of eligible shareholders for the dividend. It is generally set one or two before the record date. On ex date dividend, the stock price will fall by the amount of the dividend. It happens because the company is left with the lower profits in the accounts before the dividend payment.

Will I get dividend if I buy on ex-date? Anybody who wishes to invest in those stocks will need to purchase the stock one day before the ex-dividend date otherwise the buyer will not be eligible for the dividend, rather goes to the seller of the stock. In India, SEBI follows a T+2 settlement process wherein you need to buy the shares of a company at least two or three days before the record date or two days before the ex-date. 

      4. Payable date

It is also called the payment date when the shareholders will actually receive their dividend share. In the case of an interim dividend (which is announced and paid in the middle of the financial year), the payment date shall be set within 30 days from the announcement date. If it is a final dividend or year-end dividends (which is paid after the completion of the financial year), a company needs to distribute a dividend within 30 days from its Annual General Meeting (AGM).

Difference between ex-dividend and ex-dividend date

The meaning of ex dividend is different from ex dividend date. Suppose you have purchased a stock after the ex-dividend date then this stock will become ex dividend meaning that this stock does not have any forthcoming dividend opportunity. When you buy a stock that has gone ex dividend, you lose the next dividend payment and it will rather go to the seller of the stock. 

How to decide your buying strategy based on ex-dividend stock?  If you have missed the ex-dividend date, there are chances to earn a short term profit because the price of the ex-dividend stock will drop by the amount of the missed dividend and you will be buying the stock at a discounted price. For example, if the company’s share price was ₹ 1000 and it announced a ₹ 100 dividend per share, its share price will decline by ₹ 100 after the ex-dividend date. Investors who choose to purchase equity shares of a company on or after a one or two the ex-date can do so at an effective discount rate and can realize the same profit as you would have with the dividend amount. 

Importance of ex-dividend date

Let’s understand the importance of the ex dividend date to the company as well as to the investors. The ex dividend date is an important factor for investors who want to manage and adjust their holdings. The stock will lose its value equal to the amount of dividend after the ex-dividend date. So, before the ex-dividend date the demand for the stock increases in the market and the stocks will provide the profits to the shareholders. If the stock price rises more than the dividend amount, then it indicates a good profit-making opportunity for the investors. Hence, the ex-dividend date offers the benefit of temporary capital appreciation to the company and a promise that the dividend will be paid to the investors.

However, if investors choose to invest in stocks right before the ex-dividend date, they might not be able to earn the expected profits. This will only occur if a rise in share prices before the ex-dividend date is equal or more than the dividend amount. Furthermore, the prices of stocks will fall after the ex-dividend date and the investors will not be able to realize capital gains from its sale. 

List of companies that have announced dividends

The following is a list of five Indian companies that have recently declared dividends as of December 3, 2022.

Conclusion

It is true that, "Dividend capture is a strategy where an investor buys the stock before the ex dividend date and sells on or right after the ex dividend date in order to capture the dividend." The ex-dividend date allows investors who want to make quick profits to identify the right time to buy the shares of the company that has announced a dividend and sell them after the ex date or after receiving the dividend amount. Understanding of these terms for dividend declaration is the key to making the best of your dividend experience. In order to be eligible to get a dividend from any company, the investor should hold stocks of that company in their Demat account.

This is not investment advice. Investments in the securities market are subject to market risk, read all the related documents carefully before investing. Past performance is not indicative of future returns.