Ex-Dividend Date

The ex-dividend date is a crucial date for investors who rely on dividend income. It marks the cutoff for receiving a company’s next dividend payment. If you buy a stock on or after the ex-dividend date, you will not qualify for the upcoming dividend. This article explains what the ex-dividend date is, why it matters, and how it affects stock prices. Additionally, we will explore the key dates involved in dividend payments and provide a clear example of how the ex-dividend date works in practice.

The ex-dividend date is the cutoff date on or after which a stock is traded without the entitlement to its upcoming dividend. If an investor buys shares on or after the ex-dividend date, they will not receive the declared dividend for that period. To be eligible for the dividend, the investor must own the stock before the ex-dividend date.

Example: If a company declares a dividend of ₹10 per share and the ex-dividend date is set for 1st November, an investor purchasing shares on or after 1st November will not receive the ₹10 dividend. However, if they buy shares before the ex-dividend date, they are eligible for the dividend.

The ex-dividend date is important because it determines whether you are eligible to receive the upcoming dividend from a company. If you purchase a stock on or after the ex-dividend date,you will not receive the dividend payout for that period even if you hold the stock until the payment date.

Example: If ABC Ltd. is priced at ₹200 per share and announces a ₹10 dividend, the stock price is likely to drop to ₹190 on the ex-dividend date as the dividend is no longer included in the stock's value. Investors must understand this to ensure they time their investments to benefit from dividend payouts.

The ex-dividend date is significant because it determines who will receive the dividend. If you buy a stock on or after the ex-dividend date, you will miss the upcoming dividend payment. It is essential for investors to know this date to avoid buying stocks too late if they wish to benefit from the dividend payout.

Example: If XYZ Ltd. announces a ₹5 dividend with an ex-dividend date of 1st September, buying shares on 1st September or later means the investor will not receive the dividend, while those holding shares before this date will.

On the ex-dividend date, the stock price typically drops by the amount of the dividend as the company’s assets are reduced by the dividend payout. This adjustment reflects the fact that new shareholders will not be entitled to the upcoming dividend. However, the drop is often temporary, as the stock price usually rebounds in the following trading days.

Example: If ABC Ltd. announces a ₹10 dividend, and the stock is priced at ₹200, the stock price is likely to drop to ₹190 on the ex-dividend date as the dividend is no longer included in the stock’s value.

Let’s say Company Z declares a ₹20 per share dividend and sets the ex-dividend date as 5th October. If you buy Company Z stock on 5th October, you will not be eligible for the ₹20 dividend. However, if you buy the stock on 4th October, you will receive the dividend when paid on the payment date.

Example: If you purchase 100 shares of Company Z at ₹500 each before the ex-dividend date, and the ex-dividend date passes, you will receive ₹2,000 in dividends (100 shares x ₹20). However, if you buy on the ex-dividend date, you won’t receive any dividend.

Understanding the ex-dividend date is crucial for investors looking to benefit from dividend payouts. It determines eligibility for dividends and affects stock prices. Investors interested in receiving dividends should note the ex-dividend date to understand which shareholders are eligible.

This content is for informational purposes only and the same should not be construed as investment advice. Bajaj Finserv Direct Limited shall not be liable or responsible for any investment decision that you may take based on this content.