Investment word of the day: Ex-dividend

Investment word of the day: A significant incentive for investors is the receipt of a portion of the company's profits. Dividends are a mechanism through which investors can obtain a share of a company's profits. One of the key terms associated with dividends is ex-dividends. Here's all you need to know about ex-dividend.

What is ex-dividend?

Both interim and final dividends typically involve four key dates related to their payment, including the ex-dividend date, often referred to as the ex-date. This is the day when a stock goes ex-dividend, which means it no longer includes the value of its upcoming dividend payment.

How is the ex-dividend date determined?

The ex-dividend date is usually set two business days before the record date, also known as the cut-off date, which is the day when a company finalises the list of shareholders eligible for its forthcoming dividend distribution. Hence, if the record date is 28 May, the ex-dividend date will be set at 26 May.

Why is the ex-dividend date important?

The ex-dividend date is crucial for investors because it signifies the day on which investors can purchase shares of a specific company to qualify for the forthcoming dividend payment. The ex-dividend date acts as a deadline for investors who wish to receive the next dividend payment.

About dividends

Dividends are usually paid from the share of profits after covering all other company expenses. The distribution of dividends is declared by the board of directors. However, it should be noted that a company is not obligated to pay dividends every time. Occasionally, companies may opt to use profits for other business purposes. In certain instances, profits are reinvested in the business.

When do shareholders receive dividends?

Dividends are not paid at a specific time. They can be distributed monthly, quarterly, semi-annually, or annually. In some instances, if the company reports substantial profits, it may opt to distribute special dividends.

It must be noted that dividends do not change the company's total market value and are not a legal right of the shareholders.

Investors should check stock exchange websites to know whether a company is issuing dividends.

Disclaimer: This article is for informational purposes only and does not constitute financial advice; please consult a qualified financial advisor before making any financial decisions.