What is to sell shares before the ex-dividend date?
For shareholders, if you sell before the ex-dividend date, also known as the ex-date, you will not receive a dividend from the company.
The ex-dividend date is the date that the company has designated as the first trading day on which the shares are listed without the right to the dividend. If you sell your shares on or after this date, you will continue to receive the dividend.
Understanding the sale of shares before the ex-dividend date
The registration date and determination of the expiration date
If a shareholder is to receive a dividend, it must be in the company’s records on the date of registration. This date is used to determine the company’s record holders and to authorize whom to submit proxy statements, financial reports, and other pertinent information.
- If a shareholder sells his shares before the ex-dividend date, also known as the ex-date, he will not receive a dividend from the company.
- The ex-dividend date is the first trading day on which the new shareholders are not entitled to the next payment of dividends; however, if shareholders continue to hold their shares, they may qualify for the next dividend.
- If the shares are sold on or after the ex-dividend date, they will still receive the dividend.
- When you buy shares, your name is not automatically added to the ledger; this takes approximately three days from the date of the transaction.
When you buy shares, your name is not automatically added to the ledger; this takes approximately three days from the date of the transaction. Therefore, if the registration date is August 10, you must have purchased the shares on August 7 to receive a dividend. This would make August 8 the ex-dividend date, as it is the date immediately after the last date you could get a dividend.
The ex-dividend date is set by the National Association of Securities Dealers or the stock exchange, once the registration date has been set.
How stock prices change on the ex date
Remember that a company’s shares will trade for less than the dividend amount on the ex-dividend date than the day before.
Generally, when a dividend-paying company distributes a large dividend, the market can post that dividend in the days before the ex date because buyers step in and buy the shares. These buyers are willing to pay a premium to receive the dividend.
For example, imagine that a company’s stock is trading at $ 50 and the company announces a $ 5 dividend. Investors who own the shares after the ex-dividend date will receive the $ 5; investors who sell before the deadline will not do so. But all is not lost: the company’s stock will fall roughly by the amount of the dividend, to $ 45, or there will be an arbitrage opportunity in the market.
If the shares did not fall as a result of the dividend payments, everyone would simply buy the shares for $ 50, get the $ 5, and then sell their shares after the ex-dividend date, essentially getting $ 5 free from the company.