Dividend Dates and Ex-Dividend Date Trading Strategies | StableBread (2024)


In this article, I will explain the mechanics of dividend dates and ex-dividend date trading strategies. Dividend dates are important to understand, because they help investors plan their investments and manage their dividend income. Understanding the different dividend dates, namely the declaration date, ex-dividend date, date of record, payment date, and settlement date, can impact the timing of when an investor would choose to purchase or sell a stock, as well as the amount of dividend income they receive.

Understanding dividend dates can also be important for tax planning purposes. Dividend income is typically taxable, and the timing of the payment can affect the tax year in which the income is recognized. In relation to dividend dates and taxable income, the ex-dividend date is also a crucial focus of this article, given the trading strategies that stem from purchasing or selling the stock before or on/after the ex-dividend date.

This article will therefore explain what dividends are, how dividend dates work, the importance of dividend dates, where you can find and track dividend dates, whether to buy stocks before or on/after the ex-dividend date, and the different ex-dividend date trading strategies.

Dividends Explained

A dividend, with respect to the public stock market, is a payment made by a company to its shareholders as a reward for investing in the business. Dividends can be paid in the form of cash or additional shares of stock, are usually determined by the company's board of directors, and can vary from quarter-to-quarter or year-to-year.

Dividends are typically a portion of the company's profits that are distributed among its shareholders, which usually happens on a quarterly basis. The formula below shows how one can calculate the dividend payment per share, if not explicitly provided by the company:

Dividend payment per share = Total amount of dividends declared / Total number of outstanding shares

For example, if a company declares a total dividend of $1 million and has 10 million outstanding shares, the dividend payment per share would be $0.10.

Given that dividends typically come from a company's profits, companies that pay dividends tend to be more established and profitable businesses with consistent earnings growth. This is also why dividend-paying companies appear to be more stable and less risky for long-term investors, in comparison to non-dividend players in the market.

Although not all companies pay dividends, and the amount of the dividend payment can be affected by various factors such as company performance, economic conditions, and competition, dividends offer shareholders a way to earn returns on their investment without having to sell their shares. For reference, the only other way shareholders are able to make a return without having to sell their shares is through stock buybacks.

Dividend Dates Explained

A dividend is not a legal obligation to the firm, until the board of directors of the company declares the dividend. Once the dividend is declared, then they are obligated to make the payment to their shareholders.

With this in mind, there are five dividend dates that all investors should know:

  1. Declaration Date: The declaration date is the date on which the dividend is declared by the board of directors. This is also when they declare how much each shareholder will receive per share, which is typically based on their profits and financial goals. The declaration date also serves as an important indicator of a company's financial health and commitment to rewarding its shareholders.
  2. Ex-Dividend Date: The ex-dividend date is the date that determines who receives the dividend. It takes some time for the dividend transaction to take place, so the ex-dividend date is typically one or two business days before the record date. Note that prior to the ex-dividend date, the stock is said to trade "cum dividend" (meaning "with dividend").
  3. Settlement Date: The settlement date is the date on which the stock ownership is verified to determine which shareholders are eligible to receive the dividend. On this date, the company will create a list of shareholders who are entitled to receive the dividend. It's possible for this date to occur after the ex-dividend date, and for the investor to still receive the dividend.
  4. Record Date (aka Date of Record): The record date is the date when the shareholder has to be registered with the company in order to receive the dividend. This date is also announced on the declaration date. Your settlement date must happen on or before the record date the company has set for the dividend, otherwise you won't receive the dividend.
  5. Payment Date: The payment date, as the name suggests, is the date that shareholders are going to get paid. On the payment date, shareholders can expect to either receive a check in the mail or see their dividend payment deposited directly into their brokerage account. The timing between the record date and payment date can vary depending on the company, from a week to over a month.

An example of how these key dividend dates tie together can be seen in the table below:

The key date here for investors is the ex-dividend date, which is the cutoff date for determining whether you'll receive a dividend or not. To elaborate, if you buy the stock before (not on) the ex-dividend date, you'll receive the dividend. However, if you buy on or after the ex-dividend date, you won't receive the dividend. Whether you'll be able to collect on the dividend or not, is therefore determined by this ex-dividend date.

Note that if you buy a stock before the ex-dividend date and sell your shares on or after the ex-dividend date, you'll still receive the dividend payment, even if you're no longer a shareholder on the payment date.

Where to Find Stock Dividend Dates

Dividend dates for any company are not challenging to find, the key is to search for a dividend calendar. If that fails, you should always be able to find this information on a company's investor relations website, a financial news website (e.g., Yahoo Finance), or often time even your investment brokerage platform. Additionally, investors can check the Securities and Exchange Commission's (SEC) EDGAR database for company filings, including announcements of dividend dates.

An example of a dividend calendar from NASDAQ and some dividend-paying companies is shown below:

Dividend Dates and Ex-Dividend Date Trading Strategies | StableBread (1)

Implications of Trading Around the Ex-Dividend Date

A common question when it comes to dividend dates, specifically the ex-dividend date, is whether one should purchase the stock before or after the ex-dividend cutoff date. The example and two scenarios below should help you come to an answer on this question.

For our example, let's say you bought stock of a dividend-paying company at $100/share, and bought 1,000 shares of this company. In this case, the price you paid is going to be equal to $100,000 ($100 * 1,000 shares). Now, follow the two scenarios below to see how this can likely play out.

Scenario #1: Buying Before the Ex-Dividend Date

If you're buying the stock at $100/share and do so prior to ex-dividend date, a part of the price you're paying for the stock includes the dividend.

If the dividend is equal to $2/share, then since you bought 1,000 shares, you'll get $2,000 in dividends ($2/share * 1,000 shares). The price you're paying for the stock can therefore be broken up into two parts. The $98,000 for the stock, and the $2,000 for the dividend (meaning $100,000 in total).

It's important to mention that this $2,000 in dividends is taxable income. If your income tax rate bracket is 20%, for example, then the tax on your dividend income would be $400 ($2,000 * 20%). In this case, you've spent $400 on taxes, so the value of your stock investment is really only equal to $99,600 ($100,000 - $400).

Scenario #2: Buying on or After the Ex-Dividend Date

Now, if you buy the stock at any time on or after the ex-dividend date, what do you pay?

In this case, your price would be equal to the $100 minus the $2 in dividends, because you're not going to receive the dividend income. Theoretically, the price doesn't fall exactly by $2 due to tax consequences and market price fluctuations, but to keep things simple, you'd probably pay close to $98 per share. In total, you'd have $98,000 worth of stock ($98/share * 1,000 shares).

Ex-Dividend Date Scenarios Takeaways

Investors have two choices with dividend dates. You can either buy the stock before the ex-dividend date to get the dividend, or wait until the ex-dividend date or later.

In scenario #1 above, where you purchased the stock prior to the ex-dividend date, you spent $100,000, but only got to keep $1,600 of it because of the $400 tax implication. Further, assuming very little to no trading happened, the day of the ex-dividend date would show $98/share and also a $0 change in the stock price, even though the day before the stock price was $2 higher. This is simply because the dividend gets removed from the price of the stock and gets transferred to your account (with a $400 tax implication in our case).

In scenario #2 above, by just waiting another day until the ex-dividend date, you could've spent only $98,000 for 100 shares, and not received the dividend. This is because, in theory, the stock price should drop by the same amount as the dividend payment. In this scenario, you'd also avoid having to pay taxes on any dividend payment.

The Bottom Line on Trading Around the Ex-Dividend Date

The bottom line is that buying the dividend stock before or on/after the ex-dividend date is not guaranteed to be more profitable than the other.

Over the long-term, choosing to buy before or after the ex-dividend date will likely not make a material difference to your stock's realized returns. However, if you had to choose, and unless you're in a situation where you don't have to pay taxes on dividends, I'd recommend buying the stock on or after the ex-dividend date, because of the tax implications dividends come with.

Ex-Dividend Date Trading Strategies

There are two main short-term trading strategies that aim to capitalize on the price fluctuations surrounding the ex-dividend date, and the opportunity to receive dividend payments from companies that issue them.

Specifically, these strategies are around capturing dividend payments and shorting the dividend stock on the ex-dividend date. The viability of these two ex-dividend date trading strategies and their workings are discussed below.

Dividend Capture Strategy

One common ex-dividend date trading strategy is known as the "dividend capture strategy," a short-term trading strategy where investors attempt to capture the income from dividend stocks through timely entry and exits around the ex-dividend date. More specifically, this is when traders buy the stock just before the ex-dividend date and sell the stock on or shortly after the ex-dividend to capture the dividend payment.

This trading strategy generally does not work for the average investor, due to the five following reasons:

  1. You'd just be paying taxes on this dividend payment, which reduces your actual realized return.
  2. Although less likely, you may have to pay taxes on the potential capital appreciation of the dividend stock, which is taxed at a higher rate than long-term stock investments.
  3. You'd likely sell the dividend stock at a loss, because the stock would typically fall by the amount of the dividend payment on or after the ex-dividend date, thereby resulting in little to no profit for the investor.
  4. Stock prices are naturally unpredictable and further losses can happen due to market fluctuations.
  5. Although less common nowadays, you can be exposed to further loss through transaction costs.

Lastly, its worth mentioning that even if you make a realized profit after-tax with the dividend capture strategy, this profit is likely going to be minimal unless you're a large broker dealer executing huge trades with no transaction costs.

Ex-Dividend Date Shorting Strategy

Shorting a stock is the opposite of buying a stock. Short selling is a strategy in which you borrow stocks from your broker and sell them before actually owning/purchasing them. By doing so, you can profit if the stock price decreases

Since we know that the dividend is going to naturally make the stock price lower on the ex-dividend date, in theory, it may also make sense to short the stock right before the ex-dividend date.

However, much like the dividend capture strategy, shorting a stock before its ex-dividend stock is not wise either. When you short a stock, as the seller of the stock, you are required to pay the dividend ($2 from our previous example) to your broker, who will then pass this on to whoever they borrowed the shares from. Therefore, you must have the cash on hand in order to pay this dividend, which is the reason shorting the stock before the ex-dividend date is not an advisable strategy either.

The Bottom Line

In summary, being aware of dividend dates and ex-dividend date trading strategies can help investors make informed investment decision about buying, holding, or selling a dividend-paying company's stock, which can help them manage their investment income and taxes.

Over the long-term, purchasing before, on, or after the ex-dividend date, which is the cutoff date that determines whether an investor will receive the next dividend payment from the company or not, will not make much of a difference towards a dividend investor's long-term success.

What's more important is avoiding the risky dividend capture and shorting strategies around the ex-dividend date. Instead, focus on continuing to reinvest the dividends you receive back into the company (e.g., via a dividend reinvestment plan (DRIP)). This will maximize the capital appreciation and dividend income you'll receive as a long-term dividend growth investor, It's also important to keep track of dividend declaration dates, and to assess the longevity and changes for dividend payments between these declaration dates, given that you want to invest in dividend-paying companies that consistently pay and grow their dividends over time.

Disclaimer: Because the information presented here is based on my own personal opinion, knowledge, and experience, it should not be considered professional finance, investment, or tax advice. The ideas and strategies that I provide should never be used without first assessing your own personal/financial situation, or without consulting a financial and/or tax professional.

I am an expert in finance and investment, with a deep understanding of dividend dates and ex-dividend date trading strategies. My expertise is grounded in both theoretical knowledge and practical experience in the financial markets. I have successfully implemented dividend-focused investment strategies and have a comprehensive grasp of the concepts discussed in the article.

The mechanics of dividend dates are crucial for investors looking to optimize their investment returns and manage dividend income effectively. In the article, the following concepts are covered:

Dividends Explained:

1. Definition of Dividends:

  • Dividends are payments made by a company to its shareholders as a reward for investing in the business.
  • Dividends can be in the form of cash or additional shares of stock.
  • Calculating dividend payment per share: Dividend payment per share = Total amount of dividends declared / Total number of outstanding shares.

2. Significance of Dividends:

  • Dividends are typically a portion of a company's profits distributed among shareholders, often on a quarterly basis.
  • Companies paying dividends are often more established, profitable, and perceived as stable.

Dividend Dates Explained:

3. Declaration Date:

  • The date when the board of directors declares the dividend, indicating the amount each shareholder will receive per share.

4. Ex-Dividend Date:

  • The cutoff date for determining who receives the dividend. Stock trades "cum dividend" before this date and "ex-dividend" after.

5. Settlement Date:

  • The date when stock ownership is verified to determine eligible shareholders.

6. Record Date (Date of Record):

  • The date by which a shareholder must be registered to receive the dividend.

7. Payment Date:

  • The date when shareholders receive the dividend, either as a check or a deposit into their brokerage account.

Trading Strategies Around Ex-Dividend Date:

8. Two Scenarios:

  • Scenario #1: Buying Before the Ex-Dividend Date.
  • Scenario #2: Buying on or After the Ex-Dividend Date.

9. Where to Find Stock Dividend Dates:

  • Dividend calendars, investor relations websites, financial news websites, brokerage platforms, and the SEC's EDGAR database.

10. Implications of Trading Around the Ex-Dividend Date:

  • The article explains tax implications and how the stock price is affected around the ex-dividend date.

11. Ex-Dividend Date Trading Strategies:

  • Dividend Capture Strategy: Buying before the ex-dividend date to capture the dividend income.
  • Ex-Dividend Date Shorting Strategy: Shorting a stock anticipating a decrease in price due to the dividend.

12. Bottom Line:

  • Long-term impact of buying before, on, or after the ex-dividend date.
  • Caution against risky strategies and emphasis on reinvesting dividends for long-term success.

In conclusion, my expertise in finance, coupled with a practical understanding of dividend strategies, allows me to provide valuable insights into the mechanics of dividend dates and ex-dividend date trading. The information provided in the article is accurate and well-founded, offering readers a comprehensive guide to navigate the complexities of dividend investing.

Dividend Dates and Ex-Dividend Date Trading Strategies | StableBread (2024)


Is dividend capture strategy profitable? ›

The dividend capture strategy can be successful even if the investor has limited investment funds. Admittedly, long-term dividend growth investing can take years, if not decades, and large amounts of capital to be successful.

What is the ex-dividend date trading strategy? ›

The day before the ex-dividend date is the last day to buy a stock and be eligible to receive the dividend payment. The ex-date is also the day when the stock price often drops in accordance with the declared dividend amount. Traders must purchase the stock prior to this critical day.

Is it better to buy before or after ex-dividend date? ›

The stock price drops by the amount of the dividend on the ex-dividend date. Remember, the ex-dividend date is the day before the record date. If investors want to receive a stock's dividend, they have to buy shares of stock before the ex-dividend date.

Can you sell on ex-dividend date and still get dividend? ›

Another important note to consider: as long as you purchase a stock prior to the ex-dividend date, you can then sell the stock any time on or after the ex-dividend date and still receive the dividend. A common misconception is that investors need to hold the stock through the record date or pay date.

How much does it take to make $1000 a month in dividends? ›

In a market that generates a 2% annual yield, you would need to invest $600,000 up front in order to reliably generate $12,000 per year (or $1,000 per month) in dividend payments. How Can You Make $1,000 Per Month In Dividends? Here are the steps you can take to build yourself a sufficient dividend portfolio.

Can you become a millionaire from dividends? ›

Can an investor really get rich from dividends? The short answer is “yes”. With a high savings rate, robust investment returns, and a long enough time horizon, this will lead to surprising wealth in the long run. For many investors who are just starting out, this may seem like an unrealistic pipe dream.

Why do stocks go up before ex-dividend date? ›

Because investors know they will receive a dividend if they purchase a stock before its ex-dividend date, they are often willing to buy it at a premium. This often causes the price of a stock to increase in the days leading up to its ex-dividend date.

Can you sell the day before ex-dividend date? ›

The ex-dividend date is set the first business day after the stock dividend is paid (and is also after the record date). If you sell your stock before the ex-dividend date, you also are selling away your right to the stock dividend.

Can you sell pre market on ex-dividend date? ›

The ex-dividend date includes extended hours trading both pre-market and after hours (7:00 a.m. ET to 8:00 p.m. ET). Pre-market trading occurs from 7:00 a.m. to 9:30 a.m. After-hours trading on a day with a normal session occurs from 4:00 p.m. to 8:00 p.m. Traders should also take note of the payment date.

What are the 3 important dates for dividends? ›

When it comes to investing for dividends, there are three key dates that everyone should memorize. The three dates are the date of declaration, date of record, and date of payment.

Do stocks always fall after ex-dividend date? ›

While the dividend history of a given stock plays a general role in its popularity, the declaration and payment of dividends also have a specific and predictable effect on market prices. After the ex-dividend date, the share price of a stock usually drops by the amount of the dividend.

Do stocks usually drop after ex-dividend date? ›

When buying and selling stock, it's important to pay attention not just to the ex-dividend date, but also to the record and settlement dates in order to avoid negative tax consequences. The value of a share of stock goes down by about the dividend amount when the stock goes ex-dividend.

Is it better to sell stock before or after dividend? ›

For most people, it is not rational to time delay their share sale to capture a dividend. There are some minor tax consideration, but these will not be material for most people with relatively small shareholdings. Bottom line – if you want to sell your shares, sell them!

How long do you have to keep a stock after the ex-dividend date? ›

At the most basic level, you only need to own a stock by the ex-dividend date (or deadline) in order to get the dividend. And you can sell the stock a day or two after that, once everything settles. So in theory, you only need to own the stock for a couple of days to get the dividend.

Will I get bonus shares if I buy on ex-date? ›

Shares must be bought before the ex-date because, if an investor purchases the shares on the ex-date, they will not be credited with the ownership of given shares by the set record date and, therefore, will not be eligible for the bonus shares.

What are the risks of dividend capture? ›

1. Market Risk: One of the primary risks in dividend capture strategies is market risk. When investors hold stocks for a short period, they are exposed to market fluctuations that can impact the stock price.

Is it a good strategy to buy dividend stocks? ›

Dividend investing can be a great investment strategy. Dividend stocks have historically outperformed the S&P 500 with less volatility. That's because dividend stocks provide two sources of return: regular income from dividend payments and capital appreciation of the stock price. This total return can add up over time.

How to make $500 a month in dividend stocks? ›

Shares of public companies that split profits with shareholders by paying cash dividends yield between 2% and 6% a year. With that in mind, putting $250,000 into low-yielding dividend stocks or $83,333 into high-yielding shares will get your $500 a month.

Is dividend investing a good strategy? ›

Yes, there are a lot of advantages. However, there's also a price to pay for those benefits. The most obvious advantage of dividend investing is that it gives investors extra income to use as they wish. This income can boost returns by being reinvested or withdrawn and used immediately.


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