What is the Ex-Dividend Date? Its Meaning & Types

  •  5m
  • 0
  • 21 Sep 2023

To be eligible for the dividend, an investor must have owned the stock before the Ex-dividend date. Understanding the Ex-dividend date is crucial for those seeking to manage their investment portfolios effectively in the Indian stock market. In India, stocks go ex-dividend two working days before the record date. The record date is the cut-off date set by the company to identify shareholders eligible to receive the dividend.

The record date, also known as date of record, is an important date set by a company to determine shareholder eligibility for dividends or other entitlements.

For dividends, the record date is the cut-off date to identify shareholders who will receive the dividend payment. Only shareholders holding the stock on the record date (in their demat account) will be eligible for dividend payout.

The ex-dividend date is 2 working days prior to the record date. Investors who buy the stock on or after the ex-dividend date will not qualify for dividend.

Similarly, the record date is also used to determine eligible shareholders for corporate actions like rights issue, bonus issue, stock split etc.

Knowing upcoming record dates allows investors to buy or sell shares in time to receive dividends and other entitlements. The stock price usually adjusts on the ex-dividend date in anticipation of the dividend.

It's important to know the purpose of Ex-date & record date as the dividends & stocks price does have correlation with these dates. Directly or indirectly both of these dates can impact your investments.

Ex-Date Purpose

  • The ex-date establishes the cut-off for dividend eligibility. Investors who buy the stock on or after the ex-date will not receive the upcoming dividend.
  • It enables separation of dividend rights between existing and new shareholders.
  • The stock price declines by the dividend amount on the ex-date as new buyers are not entitled to the dividend.

Record Date Purpose

  • The record date is the final cut-off to identify shareholders who will receive the dividend.
  • Only shareholders holding the stock in their demat account on the record date become eligible for dividend payment.
  • The gap between ex-date and record date provides settlement time for share transfers to complete so eligibility can be accurately determined.
  • Companies use the record date to fix the shareholder register for dividend disbursal.

Referring to the above point both the ex-date and the record date has its own purpose which can segregate rights and establish a definitive shareholder for the dividends payout of their shares.

As you learned what is the ex dividend date, let's know some example of an Ex-dividend date to understand ex dividend date meaning:

Here is an example to illustrate ex-dividend date and record date:

Company XYZ Dividend Details

Dates

Dividend Amount

Rs. 5 per share

Ex-Dividend Date

March 10, 2023

Record Date

March 15, 2023

Payment Date

March 30, 2023

Explanation:

  • Company XYZ has announced a dividend of Rs. 5 per share
  • The ex-dividend date is March 10, 2023
  • Investors who buy the stock on or after this date will not get the Rs. 5 dividend
  • Record date is March 15, 2023
  • Shareholders holding the stock on this date in their demat account will get the dividend
  • Dividend payment will be credited to eligible shareholders on March 30, 2023
  • So in this example, investors should buy the stock before March 10 to become eligible for the Rs. 5 dividend payout. The stock price is expected to decline by Rs. 5 on the ex-dividend date.

Types of Dates for Dividend payment

There are mainly three important dates related to dividend payment in the stock market. Other than that you can know about different dates relevant to the dividend payment of the stock. Know about them in the following points:

  1. Announcement Date: This is the date when the company announces the dividend amount and other details. It indicates the board's approval for dividend payment.

  2. Ex-Dividend Date: This is a vital date which establishes a cut-off for dividend eligibility. Different Investors who buy the stock on or after this date will not receive the dividend. The stock price typically declines by the dividend amount on this date.

  3. Record Date: This is the final cut-off date to identify shareholders who will be paid the dividend. You need to own the stock on this date in your demat account to receive the dividend. The shareholder register is fixed on this date.

  4. Payment Date: This is the date when actual dividend amounts are credited to the bank accounts of eligible shareholders. It occurs after the record date

  5. Declaration Date: When the company board formally declares its intention to pay a dividend. It precedes the announcement date.

  6. Cum-Dividend Date: The trading days between declaration and ex-dividend date are called cum-dividend days. Stock buys during this period get the dividend.

The ex-dividend mechanism enables smooth transition of dividends from existing shareholders to new buyers. It maintains fairness and prevents claims on the same dividend by both parties.

Ex-dividend indicates the value currently attributable to the stock excluding its dividend entitlements. This allows comparability of dividend paying stocks. Knowing ex-dividend dates helps investors understand their dividend eligibility and adjust purchase decisions and stock valuations accordingly.

In contrast, the ex-dividend is an important concept that determines dividend entitlements and impacts share pricing. Understanding ex-dividend mechanics allows investors to optimize dividend gains from equity investments.

As you understood what is the ex dividend date, and its example. You can research stocks which have announced or have a good history of dividend payout. Check different types of stocks & invest which one matches your investment goals. You can browse different stocks & track each stock live from Kotak Securities.

FAQs on Ex-Dividend Date

Dividends require stock ownership prior to the Record Date, usually one business day before the Ex-date. After the Ex-date, shares must be purchased to qualify for dividend payouts.

The dividend per share causes the stock price to decrease roughly on the ex-date. With the dividend removed from the stock's value, this adjustment reflects the fact.

Based on established rules and regulations set by SEBI, stock exchanges set the Ex-date.

On or after the Ex-date, buying shares means missing out on the upcoming dividend payment. Before this date, the shares must have been owned in order to be eligible for the dividend payout.

Before the ex-dividend date, it is generally better to buy the stock to be eligible for the dividend. Not receiving the following dividend outcome means buying after the ex-dividend date.

The stock price drops due to the absence of dividend benefit for new buyers on the ex-dividend date. An adjustment that reflects a decline in value for new buyers.

The cum-dividend period is a few trading days before the ex-date when stock buyers are still eligible for dividend. Buying in cum-dividend period entitles you to the dividend.

Read Full Article >
Enjoy Zero brokerage on ALL Intraday Trades
+91 -

personImage