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Understanding the ex-dividend date is a key part of knowing when to buy shares of dividend stocks.
Fortunately, ex-dividend dates are easy to understand. And to help you get started, we've created a guide to explain everything there is to know about them.
Once you've got it down, you'll be fully equipped to start trading high-yielding dividend stocks.
What Does Ex-Dividend Mean?
The ex-dividend date is important because it's the cutoff period for you to buy shares of a company and receive the dividends for the next payout date.
So, in order for shareholders to get paid the upcoming dividend, they must own shares of the dividend-yielding stock at least one day prior to the ex-dividend date.
But the ex-dividend date isn't the only important date. Once you've purchased your high-yield dividend stock shares prior to the ex-dividend date, you'll want to pay attention to the "record date." The record date occurs two days after the ex-dividend date. This means all shareholders have been officially recorded to receive their dividends from the company.
After that, you'll want to watch out for the "payment date." That's simply the day you'll receive your dividends from a company.
This finally leads us to where you can find the ex-dividend date. You can check a stock's previous payment date online or from your brokerage account. Once you've done this, you can add three months from the payment date to roughly estimate the next ex-dividend date until the firm releases an exact time for the record date. Of course, these dates can vary depending on holidays and weekends.
While you may read this and think you could easily buy before an ex-dividend date and then sell after payout periods for quick cash, this isn't the case. This is because dividend stocks' values will drop by the dividend payout amount after shareholders receive them.
For example, if you purchased shares of a stock that pays a $0.40 dividend, the share value will dip by roughly $0.40 immediately after payout.
Nonetheless, to maximize your dividend investment, you'll want to buy after the previous payment date and before the ex-dividend date. And now that you understand what ex-dividend dates are, you can use that knowledge to buy dividend stocks at the right time to receive immediate dividends.
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About the Author
Daniel Smoot is a Baltimore-based editor who helps everyday investors with stock recommendations and analysis. He regularly writes about initial public offerings, technology, and more. He earned a Bachelor's degree from Towson University.