Investing money

Ex-dividend date explained

Ex-dividend is the date noted by a company that serves as a deadline to receive dividend payout. Hence, if you wish to receive a dividend, you need to be amongst the shareholders who hold the shares after the close of business on the previous trading day (cum-dividend date).

In other words, make sure you buy or own the share prior to ex-dividend day, to receive dividends at a specified future date. Important: Investors who purchase the share on the ex-dividend date are not entitled to this dividend.

Declaring record date and ex-dividend date

The moment a company decides to pay a dividend in the future, the board of directors sets a record date. This is the day an investor must have bought the share in order to receive the dividend.

The ex-dividend date is then set by the exchange following set guidelines. Usually, that means the ex-dividend date is one business day before the record date.

It is important that you take note of the exchange trading hours of the stock. Meaning, if we wish to buy a share on the Singaporean exchange, it would be good practice to consider:

  • National bank holidays in home country
  • National bank holidays in Singapore (in this example)
  • Exchange open hours, adjusted for time zone difference
  • Transition of business day into weekend
  • Transition of weekend into business day

Thankfully, you won’t have to do this yourself at the moment, You can place a limit order above market price with a running duration of a week for example. If you plan this prior to an ex-dividend date, you have a fair chance to own the stock on time.

ex-dividend date, placing a limit order of 1 week.
Trading ticket of a stock on the Singaporean exchange

The ex-date occurs before the record date because of the way stock trades are settled. Effectively, at exchange open or close, it is much easier to account for all shareholders, because no trading activity is occurring. Making it easier to review a static list.

Quick facts & things to avoid

You need to buy a dividend-paying stock at least one day before the record date since trades take a day to settle (read process).

Some of you may be thinking, is there a way to get both the dividend and the same share price if i time my buy and sell well enough? Well, not exactly. You see the market adjusts for these events even before you can react.

For example, you bought a stock the day before the ex-dividend day. Now, a day later, you decide to sell at market open and make a quick profit. Easy right? Wrong! The moment the market opens on the day the price of the share will have adjusted for the exact amount due for payment.

But wait, then why would I want the dividend if the value of the stock is just going to be adjusted? You would want to based on the expectation of the stock to consistently grow and payout over time. During this time, you will reinvest your dividends leading to what is called a snowball effect.