The ex-dividend date, also known as the reinvestment date, is an investment term involving the timing of payment of dividends on stocks of corporations, income trusts, and other financial holdings, both publicly and privately held.
[edit]Background
Many publicly traded companies, and some privately held ones, 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 changes each day. 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." 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 on or 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. Dividend payment is made on a separate date known as the dividend date, typically after the record date.
[edit]Details
After the close on the day before the ex-dividend date and before the market opens on the ex-dividend date, all open good-until-canceled limit, stop, and stop limit orders are automatically reduced by the amount of the dividend, except for orders that the customer indicated "Do Not Reduce." This is done because the dividend payout will decrease the value of the company, as it comes directly from the company's reserves. At the market opening on the ex-dividend date, the stock will trade on an ex-distribution basis, adjusted for the amount of the dividend paid. 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.
The key date for dividend-paying stocks, funds, or securities is the ex-dividend date. The Record Date, or Date of Record, determines the ex-dividend date, before which an investor must own the stock in order to receive the dividend. For the investor to receive the upcoming dividend the investor must purchase the stock prior to the ex-dividend date.