Befuddled About The Ex-Dividend Date
Have you’ve ever been confused by the array of dividend dates, you wouldn’t be the only one. This article will steer you through the dividend maze.
The ex-dividend date; the record date; and payment date are the key dates to comprehend.
The ex-dividend and the payable date are the only dates you need the remember.
The record date is announced by the company at the same time that the dividend amount is announced.
This means that all stockholders who are on the company’s share register at that date will be paid the dividend.
The shareholder must have bought the shares at least three trading days prior to the books close. This is because of the T+3 settlement system. It’s simply the procedure for settling trades on the ASX. When traders purchase stock through their broker, the moment the trade is executed the share buyer becomes the legal owner of the stock, and assumes the gains or losses from movements in its price.
But the money is not exchanged and the shares transferred from seller to buyer until three business days later.
Therefore, in order to hold the shares on the record date, and therefore be entitled to the dividend, the investor needs to have purchased it three business days prior, that is prior to the ex-dividend date.
After the company announces the dividend and books close date, the ASX determines the ex-dividend date.
The ASX informs the market of the date investors need to have purchased by in order to be on the register at the books closing date.
That ASX determined date is known as the ex-dividend date. If you buy a share before the ex-dividend date, the stock is cum-dividend, and you’re entitled to the dividend. If you buy it on or after the ex-dividend date, then you will not receive the current dividend and the stock is considered ex-dividend. And that’s why it’s important for portfolio managers to understand this particular date.
On the ex-dividend date, all things being equal, the shares should fall in price by the value of the dividend. Its important not to worry if the share gaps down by a few percent overnight. You’ll be compensated by your dividend payment in a few weeks time. It is worth checking the payable date as some companies are regular offenders when it come to late payment of dividends.
All things are usually not equal so a share will typically fall a little more or a little less than the dividend, depending on what is happenning in the market on that day.
The company mails out the dividend cheques on the payable date Alternatively, for those using direct credit, the day the funds will be transferred to you. Investors who participate in a dividend reinvestment plan (DRP) will receive shares in lieu of cash around this time.
