As a dividend investor, the ex dividend date is a good one to know because it could affect when your next dividend payment will arrive in your account. Here's how...
When purchasing shares in a company, the dividend ex date is the day on which you are no longer entitled to the upcoming dividend payment that was announced by the board of directors on the dividend declaration date. So if you buy the shares before this date, you will receive the dividend payment.
The opposite is true when selling shares. Now as a dividend investor, your goal should be to hold on to shares in excellent businesses for the long-term raising income. Selling should not be on your mind. However, if you find that one of your companies is consistently underperforming and you feel it’s time to sell off your stake, then the ex-dividend date will again come into play.
If you sell your shares before this date, you will not receive the next dividend payment. If you sell the shares on or after this date, the dividend is yours.
Here comes an example...
On August 28th after releasing financial results for the 3rd quarter, XYZ Financial’s Board of Directors declared a quarterly dividend payment of $0.63 per share. The dividend will be payable on October 29, 2012 to shareholders of record on October 2nd, 2012, with an dividend ex date of September 28th, 2012.
So the ex date in this case is September 28th and it usually occurs a few days before the dividend record date.
So if you purchased shares in XYZ Financial on September 27th or any time before, then you would receive the dividend payment. If you purchased shares on September 28th... sorry!
One interesting thing to note as a long term investor is that the share price of a company often dips temporarily after the ex dividend date. Perhaps reflecting the fact that the cut-off date has passed. Although you will be foregoing the upcoming payment, you may be able to purchase the shares at a slight discount for a larger yield and long term payoff.... food for thought.
Well done... let’s keep moving!