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When a company does well plenty to distribute some of its profits to its stock shareholders, this is known as paying dividends. Investing in stocks that pay out high dividends tin be a cracking strategy for long-term investors, but dividend payments take a specific timeline they follow that includes of import dates you'll want to pay attention to. These include what's known as the ex-dividend date. If you're looking into dividend stock investments, it 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 Appointment?
An ex-dividend date is one of several important elements of the dividend payment process that yous should be familiar with as an investor. Non only does it determine who'll receive payments from an upcoming dividend, simply it besides tends to have an effect on the price of the stock in question throughout the class of the process.
To proceed things uncomplicated, ex-dividend dates are the concluding date on which you can purchase a stock in guild to be considered eligible to receive a role of the upcoming dividend payment — sort of a cutoff date. Only to meliorate sympathise what this means, it helps to look at the entire payment process, including several other important dates. These include:
Announcement Date: This is the day when a visitor declares the details of an upcoming dividend payment. It usually includes the appointment that shareholders will exist paid, how much they'll be paid and the appointment by which you must become a shareholder to get paid.
Record Date: The tape appointment is the official cutoff engagement past which you must be a shareholder in gild to receive a portion of the dividend payout. The important thing to proceed in mind is that, depending on which market you lot trade on, it may accept a day or more for an investment to really go through. In other words, if y'all wait until the record engagement to buy stock, your buy may not go through until the next day, and you'll miss the cutoff for dividend payments. This is why the ex-dividend date exists.
Ex-Dividend Date: The ex-dividend appointment is the date by which y'all demand to buy a stock in guild to make sure your investment goes through by the record date. It'southward often one business concern 24-hour interval before the tape date. Information technology gives the merchandise enough time to fully execute and to authorize you lot as a shareholder. If you buy a stock by its ex-dividend date, yous'll receive a portion of its upcoming dividend payout. If you lot buy the stock after the ex-dividend date, however, you'll miss out on that upcoming dividend date and will demand to wait until the next payment engagement.
Payment Appointment: This is the twenty-four hours when the payments of dividends are disbursed to investors.
To illustrate how the entire process works, let's take a look at a existent-earth example. Argo Group International (ARGO) announced its quarterly dividend payment on the declaration date of Feb 16, 2021.
The declaration included the post-obit information well-nigh the upcoming payout:
- Payout amount: $0.31 per share
- Ex-dividend date: 2/25/2021
- Tape date: ii/26/2021
- Payment appointment: 3/12/2021
What does this hateful to you lot as an investor? Say you already hold stock in ARGO. If that'due south the case, you'll want to hang onto your shares until subsequently the record date if you want to have advantage of getting paid the upcoming dividends.
If you're non however an investor but are interested in purchasing ARGO shares, then you'll need to become an official shareholder by February 26. Because your purchase of shares could have a day or more than to fully execute, yous'll want to make sure that y'all invest past February 25. You lot'll then receive a payout of $0.31 per share on the upcoming pay appointment of March 12.
The amount of money you receive from a dividend payment depends on how many shares yous hold in the company. Say, for instance, that you bought ane,000 shares of ARGO by February 25. In that case, your dividend would exist calculated as yard shares 10 $.31/share, which equals a $310 dividend payout.
The Furnishings of Declaration Dates on Stock Prices
Aside from knowing how much money you tin can look to brand from an upcoming dividend payout, you should too be enlightened of the effect that some of these dates tin can have on a company's stock price. This is primarily the case when it comes to the declaration date and the ex-dividend date.
A visitor'due south annunciation appointment can reveal a great bargain near how the company is doing, for ameliorate or worse. For example, imagine that you'd held stock in a company for five years. For each of those years, the company had paid out an annual dividend of $i.00 per share.
If the company suddenly announced i year that its upcoming dividends would only pay out $.25 a share, it'd be fair to presume that things hadn't been going so well. The reverse is also true. If, instead, the visitor announced that it'd exist paying out dividends of $two.00 per share one twelvemonth, then this would probable be an indication it was doing amend financially than it had been.
Investors may look to a company's declaration as a sort of litmus test for the company'southward wellness. For this reason, many companies endeavor to keep their dividends relatively consistent. If a company announces a lower-than-boilerplate dividend, it might cause investors to sell. If it announces a higher-than-average dividend, that'll likely attract more buys — which is ideal as long equally the company 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'southward price. In the days leading up to a company'due south ex-dividend date, the price of its stock will usually rise as more people effort to make it on the upcoming dividend payout before information technology's too late.
Immediately afterward, all the same, the stock's toll volition generally drop. This is not only because the cutoff date has passed, but also because the company's value technically decreases due to the coin that's about to be paid out in the dividend payments.
Subsequently a company'due south ex-dividend date, it goes through a period of time when its shares are for sale without the value of the upcoming dividend included. During this fourth dimension, the stock is said to have "gone ex-dividend" and the letters "XD" may appear next to it to bespeak this.
Due to these considerations, buying a stock right before the ex-dividend appointment isn't necessarily a smart movement unless y'all're planning to hold onto it for the long booty. You'll likely pay a higher rate for shares that are only going to decrease in value once the stock goes ex-dividend, fifty-fifty if you do get a cut of the dividend profit. On the other hand, if you buy afterwards the ex-dividend date, you lot'll normally be able to purchase stocks at a lower toll. Even though you won't be getting a share of the upcoming dividend, yous'll notwithstanding have the chance to receive a portion of the side by side 1, assuming you lot 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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