Ex-dividend date

When a company declares a dividend, it sets a record date: the shareholders on its register that day will be paid. Because trades take time to settle, the market also sets an ex-dividend date so that it is clear who is entitled. If you buy the share before the ex-dividend date, you receive the dividend; if you buy on or after it, the seller keeps the right to it. In markets where trades settle one business day after they are made, such as the US, the ex-dividend date is usually the same day as the record date; where settlement takes longer, the ex-date falls earlier.

On the ex-dividend date the share price usually falls by roughly the amount of the dividend, because new buyers no longer get it. Buying just before the ex-date to capture the dividend therefore produces no free gain: the price drop broadly offsets the payment, and the dividend may be taxed as income. Selling on or after the ex-date still leaves you entitled to the dividend, which arrives later on the payment date, often some weeks afterwards. Price-only index levels drop on ex-dates too, which is one reason price charts understate total return.