Ex Dividend : From Wikipedia, the free encyclopedia
The ex dividend date, also known as the reinvestment date, is a finance or investment term related to the payment of dividends.
Many publicly-traded companies pay dividends to their stockholders. The question of who should be paid dividends becomes complex, as these companies are continually being traded and the composition of their shareholders therefore changes each day. In order to settle this question, companies designate a date, known as the record date. Dividends are paid to the list of shareholders who hold stock on the record date. The process is further complicated by the fact that it takes time for a stock purchase to "clear" or "settle". In order to allow time for this processing, stock exchanges set a date - generally two business days prior to the record date - known as the ex-dividend date. Someone who purchases the stock after the ex-dividend date will not receive the dividend, as the purchase will not "settle" by the record date, and therefore the buyer will not be on the list of shareholders to which the company pays its dividends.
Note that dividends are not always paid on the record date. Dividend payment is made on a separate date known as the due date.
When the market opens on the ex-dividend date, the exchanges automatically decrease the price of the stock by the amount of the dividend. This is done because the dividend payout will decrease the value of the company, as it comes directly from the company's reserves.
Calculating the exact ex dividend date can be important if the dividend is big, and the stock has been sold on or near the ex dividend date. As of now, July 2005, the United States has three days of settlement for stock trades, although there has been talk of shortening to one day. So the ex dividend date is normally two business days (3 minus 1) before the record date. Business days are defined by when banks are open in New York City, not by when the stock markets are open. Thus Columbus Day and Veterans Day are business days for the stock markets, but not for calculating an ex dividend date. If the record date isn't a business day, then you count back from the most recent business day instead of the actual record date. For instance, if the record date is Sunday, then the ex dividend date is the preceding Wednesday, not Thursday - assuming no holidays.
If a corporation is distributing something other than a cash dividend, such as rights or warrants, then an ex-dividend date can be called an ex rights date, or ex warrants date, etc.
Signatures are so yesterday!
