Here’s one common question from first-time stock investors who have heard about dividends to be distributed by a certain company:
If I buy stocks during the announced EX-DATE, am I eligible to receive dividends from the company?
The simple answer is: No. Only investors who hold the shares prior to the ex-date are entitled to receive the dividends.
Here’s a more detailed explanation.
Ex-Date, Record Date, Distribution Date
We need to understand what the relevant dates are when a company declares dividends.
1. Dividend Declaration Date
The Declaration or Announcement Date is when the company makes a public announcement that it is issuing dividends. During this date, the company also typically announces the ex-date, record date, and payment date of the dividends.
2. Ex-Date (or Ex-Dividend Date)
The Ex-Date, also called the Ex-Dividend Date, is the first day when buying a stock DOES NOT entitle the stockholder to the dividends.
A simple mnemonic device to help you remember this concept is this: “During EX-DATES, you’re EXCLUDED from receiving dividends.”
Starting from the Ex-Date and all succeeding days after, anyone who buys the stock is no longer eligible to receive said dividend.
Prior to the ex-date, the stock is said to be trading “cum-dividend” or “with dividend.” So if you want to receive the dividend, buy the stock before the Ex-Date.
3. Record Date
The Date of Record is when the company checks its “records” to see which shareholders are registered in the “books” of the company and entitled to receive the dividend. No need to be concerned about this, though, since as long as you bought the shares before the ex-date, your name will be “on record” and you will be eligible to receive the dividends.
4. Payment Date
The Payment Date is, of course, the date when you will receive the dividends. It may be sent to you as a direct deposit to your trading account or as a check made payable to you.
So to reiterate, if you buy a stock during the EX-DATE (and any other dates after it), you will NOT be eligible to receive the dividends.
Should I buy stocks before the Ex-Date?
If your goal is to merely receive the dividend, go ahead. Buy the stock before the ex-date so you can get the dividends.
Take note, however, that the stock could experience a pre-dividend rally that might inflate the stock price temporarily because other investors — just like you — would also want to receive the dividends.
The problem is that, after the ex-date, investors might start selling and dumping the shares since they’ve been eligible already to receive the dividends. If that happens, the stock price could plummet. And if you bought the stock at an inflated price and it declined once the sell-off occurs, you could end up with a loss even after receiving the dividends.
So be aware and beware!
More awesome guides and tutorials about stocks and dividends below:
- How to Invest in the Philippine Stock Market — FREE Tutorial and Guide!
- All about Dividends in Stock Investing
- Why People Lose Money in Stocks
- How to Use the PSE Board Lot Table