What is Ex-Dividend Date? Meaning & Its Importance for Investors

While purchasing dividend stocks, investors need to check many aspects, like the company’s dividend history, growth potential, pay-out ratio, important dates, etc. And one such important date is the ex-dividend date. To avail the benefits of dividends from a particular stock, you must learn about the ex-dividend date.

So, in this article, you’ll know what ex-dividend date is, its importance for investors, other types of dividend dates like record dates, and all the queries related to ex-date. 

What is Ex-Dividend Date?

The ex-dividend date is an ultimatum date for interested individuals to invest in the company before the record date. Thus, it is set exactly one business day before the record date so that people who want to invest and get dividends can get ample time to buy their shares and get their names listed in the company’s records.  

So, suppose the ex-dividend date for a particular stock is March 10, and the record date is March 11; you have time until the 10th to invest in that company. Moreover, even if you invest on the ex-dividend date, your shares will take 1 day to reflect in your Demat account and make you eligible for dividend payments.

Now, to understand the importance of the ex-dividend date, you need to know the dates that come into play when a company pays its shareholders.

They are as follows:

• Announcement Date

When a company makes a public announcement to make dividend payments to its shareholders, it is called the announcement date.

• Record Date

Dividend payments are made to shareholders on an organisation’s record date. Individuals who have shares of the company in their demat account on the record date are eligible for the dividend payments. You cannot receive dividends if you purchase company stocks on the record date.  

• Ex-dividend Date

Investing in the company before the record date is an ultimatum for interested individuals. Thus, it is set exactly one business day before the record date so that people who want to invest and get dividends can get ample time to buy their shares and get their names listed in the company’s records.  

So, suppose the ex-dividend date for a particular stock is March 10, and the record date is March 11; you have time until the 10th to invest in that company. 

Moreover, even if you invest on the ex-dividend date, your shares will take 1 day to reflect in your Demat account and make you eligible for dividend payments.

• Payment Date 

The payment date is the day the company pays dividends to its eligible shareholders. In this regard, organisations must pay dividends within 30 days of its announcement. 

Will You Get a Dividend if You Buy Shares on the Ex-Date?

After setting the record date, the ex-date is decided based on the stock exchange rules. The ex-dividend date is usually a day before the record date. If you buy the stock on the ex-dividend date, you will not be eligible to receive the dividend. Instead, the seller will receive the dividend in this case.

The reason for this is the trade settlement time. It takes T+1 days for the trade to settle. It means if you buy the stock on the ex-dividend date, it is credited to your demat account by the end of the day of the record date. Therefore, when the company takes the record of shareholders, the units may be in the seller’s account, and hence they will receive the dividend instead of you.

Can I Sell Shares on the Ex-Dividend Date?

To receive the dividend, you need to hold the shares at the opening of the ex-dividend date. However, you can sell it and still receive the dividend. For example, if you own the share at 9:30 am and place a market order to sell the units at 9:31 am, you will still receive the dividend because it takes T+1 days to settle the trade. 

Importance of the Ex-dividend Date for Investors

After the announcement, the demand for that particular stock starts increasing. It reaches its peak before the ex-dividend date. Under such circumstances, if the market price of these shares exceeds the dividend rate, shareholders sell off their holdings to secure higher gains.

Inversely, some investors may start liquidating their assets to invest in this company’s shares and profit by securing the dividend payments. However, their investments might not be profitable. This is because, due to high demand, the stock prices are already equal to or more than the dividend rate. 

In addition, there are high chances of the stock value falling on or after the ex-dividend date, making it impossible for individuals to realise gains.

Impact of Ex-dividend Date on Share Prices

The price of the shares usually increases on the days preceding the ex-dividend date because the investors are ready to buy at a premium to receive a dividend from the company.

On the day of the ex-dividend date, there is more supply of stocks of that particular company because the investors know they’ll receive the dividend even if they sell the units on the ex-dividend date, which leads to a fall in the prices. Though no such rule exists, the history of ex-dividend dates for all stocks reflects this phenomenon.

How to Check Ex-Dividend Date?

To check the ex-dividend date on the NSE website, you need to follow the mentioned steps:

1. Visit nseindia.com
2. Scroll down and click on corporate actions to check the ex-dividend date.

To check the ex-dividend date on the NSE website, follow the steps mentioned:

1. Visit bseindia.com
2. Click on Corporates

3. Click on Corporate Actions.

Who Sets the Ex-Dividend Date?

Once the record date for the dividend is decided, the ex-dividend date is scheduled according to the stock exchange rules. The ex-dividend date is usually 1 business day before the record date. Please note you will not receive the dividend if you buy the stock on the ex-dividend date due to the T+1 settlement rules.

What is the Difference Between Ex-Dividend Date and Record Date?

Final Word

Now that you know the importance of the ex-dividend date, and its effects on stock price, you can use it to invest in dividend stocks smartly. Moreover, the price drop from the ex-dividend date generally happens in the short term. So, you can also buy stocks during that time to reap gains when the price reaches normal levels.

Frequently Asked Questions