Legal Definitions - cum dividend

Cum dividend is a Latin phrase meaning "with dividend." When a stock is traded cum dividend, it signifies that the buyer of the stock is entitled to receive the next dividend payment that has been declared by the company. This entitlement holds even if the dividend was declared before the buyer purchased the shares, provided the purchase occurs before the stock trades ex-dividend (without dividend).

Here are a few examples to illustrate this concept:

• Individual Investor Purchase: Imagine an investor named David wants to buy shares in "Green Energy Corp." The company recently announced a quarterly dividend of $0.50 per share, with the "record date" (the date by which you must own the stock to receive the dividend) set for next Friday. David purchases 100 shares of Green Energy Corp. on Tuesday.

  Explanation: Because David bought the shares on Tuesday, before the record date and before the stock went ex-dividend, he purchased them cum dividend. This means David, as the new owner, will receive the $0.50 per share dividend payment for his 100 shares, totaling $50, even though the dividend was declared before he became a shareholder.

• Corporate Acquisition: "Global Holdings Inc." is in the process of acquiring "Innovate Tech Solutions" by purchasing all of its outstanding shares. Innovate Tech Solutions had previously declared a special dividend to be paid to its shareholders of record in two weeks. Global Holdings Inc. completes the acquisition and takes ownership of all shares today.

  Explanation: Since Global Holdings Inc. acquired Innovate Tech Solutions' shares today, before the special dividend's record date, they purchased the shares cum dividend. Consequently, Global Holdings Inc., as the new sole shareholder, will be the recipient of the special dividend payment for all the acquired shares.

• Market Price Reflection: A publicly traded company, "Future Gadgets," is currently trading at $75 per share. The company has announced a $1.25 per share dividend, and the "ex-dividend date" (the date on or after which new buyers will *not* receive the upcoming dividend) is scheduled for three days from now. Anyone buying Future Gadgets shares today or tomorrow is buying them cum dividend.

  Explanation: If an investor buys Future Gadgets shares today, they are buying them cum dividend. This means the purchase price of $75 per share implicitly includes the value of the upcoming $1.25 dividend. Theoretically, once the stock begins trading ex-dividend in three days, its price might drop by approximately $1.25 (assuming all other market factors remain constant) because the right to that dividend payment is no longer part of the share's value for new buyers.