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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 can exist a corking strategy for long-term investors, but dividend payments accept a specific timeline they follow that includes important dates you'll want to pay attention to. These include what's known as the ex-dividend appointment. If you're looking into dividend stock investments, information technology helps to learn exactly what the diverse dates mean and how they'll touch your stocks throughout a dividend payment's "lifetime."
What Is an Ex-Dividend Date?
An ex-dividend date is one of several important elements of the dividend payment process that you should be familiar with every bit an investor. Not merely does it determine who'll receive payments from an upcoming dividend, but it too tends to have an effect on the price of the stock in question throughout the course of the procedure.
To go along things uncomplicated, ex-dividend dates are the last appointment on which you tin can buy a stock in order to be considered eligible to receive a role of the upcoming dividend payment — sort of a cutoff date. But to amend understand what this means, information technology helps to look at the entire payment process, including several other important dates. These include:
Declaration Date: This is the day when a company declares the details of an upcoming dividend payment. It normally includes the date that shareholders will exist paid, how much they'll exist paid and the date by which you must get a shareholder to get paid.
Tape Engagement: The record appointment is the official cutoff appointment past which you must be a shareholder in gild to receive a portion of the dividend payout. The important matter to keep in mind is that, depending on which market you trade on, it may accept a 24-hour interval or more for an investment to really go through. In other words, if you wait until the record date to purchase stock, your buy may non go through until the next twenty-four hours, and yous'll miss the cutoff for dividend payments. This is why the ex-dividend date exists.
Ex-Dividend Date: The ex-dividend date is the date by which yous need to purchase a stock in guild to make certain your investment goes through by the tape date. It's often one business day before the record date. It gives the trade enough time to fully execute and to qualify you as a shareholder. If yous buy a stock by its ex-dividend appointment, you'll receive a portion of its upcoming dividend payout. If you lot buy the stock after the ex-dividend date, even so, you'll miss out on that upcoming dividend date and will need to expect until the next payment engagement.
Payment Appointment: This is the day when the payments of dividends are disbursed to investors.
To illustrate how the entire process works, let'due south take a expect at a real-globe instance. Argo Group International (ARGO) announced its quarterly dividend payment on the declaration date of February 16, 2021.
The proclamation included the following information about the upcoming payout:
- Payout amount: $0.31 per share
- Ex-dividend appointment: 2/25/2021
- Tape date: 2/26/2021
- Payment date: 3/12/2021
What does this hateful to you as an investor? Say you already hold stock in ARGO. If that'due south the case, yous'll want to hang onto your shares until after the record appointment if you want to take advantage of getting paid the upcoming dividends.
If you're not yet an investor simply are interested in purchasing ARGO shares, then you lot'll need to go an official shareholder past February 26. Because your purchase of shares could take a day or more to fully execute, y'all'll want to make sure that you invest past February 25. Yous'll then receive a payout of $0.31 per share on the upcoming pay date of March 12.
The amount of money yous receive from a dividend payment depends on how many shares you hold in the visitor. Say, for instance, that you bought 1,000 shares of ARGO past February 25. In that instance, your dividend would be calculated equally yard shares x $.31/share, which equals a $310 dividend payout.
The Effects of Declaration Dates on Stock Prices
Aside from knowing how much money you lot can expect to make from an upcoming dividend payout, you lot should also be aware 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 proclamation appointment and the ex-dividend date.
A company'south annunciation date can reveal a great deal about how the company is doing, for improve or worse. For instance, imagine that you'd held stock in a company for 5 years. For each of those years, the company had paid out an annual dividend of $1.00 per share.
If the company of a sudden appear one year that its upcoming dividends would only pay out $.25 a share, it'd be fair to assume that things hadn't been going so well. The reverse is also true. If, instead, the company appear that it'd be paying out dividends of $2.00 per share one year, then this would likely be an indication it was doing improve financially than it had been.
Investors may look to a visitor's declaration equally a sort of litmus test for the visitor'southward health. For this reason, many companies try to keep their dividends relatively consistent. If a company announces a lower-than-average dividend, it might cause investors to sell. If it announces a higher-than-boilerplate dividend, that'll likely attract more buys — which is platonic as long equally the company can retain that college rate going forward.
The Furnishings of the Ex-Dividend Date on Stock Prices
The ex-dividend engagement also tends to have an effect on a stock'due south price. In the days leading up to a visitor'south ex-dividend date, the price of its stock will commonly rise as more people try to go in on the upcoming dividend payout earlier it's as well late.
Immediately after, however, the stock's toll will generally drop. This is not merely because the cutoff appointment has passed, simply likewise considering the company'south value technically decreases due to the money that's virtually to be paid out in the dividend payments.
Later on a company'southward 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, ownership a stock correct before the ex-dividend date isn't necessarily a smart move unless yous're planning to hold onto it for the long haul. You'll probable pay a higher rate for shares that are merely going to decrease in value in one case the stock goes ex-dividend, even if you do get a cut of the dividend profit. On the other hand, if you lot purchase after the ex-dividend engagement, you lot'll usually exist able to buy stocks at a lower price. Even though you won't be getting a share of the upcoming dividend, you'll still take the chance to receive a portion of the next one, 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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