Legal Definitions - ex dividend

The term ex dividend describes a period during which shares of a company's stock are traded without the right to receive the next upcoming dividend payment. When a stock trades "ex dividend," it means that if you purchase the shares on or after this specific date, you will not receive the dividend that the company has declared. Instead, the previous owner (the seller) will receive that dividend. This occurs because there is a cutoff date, known as the "record date," for determining who is officially a shareholder entitled to the dividend, and the "ex-dividend date" is set to ensure that stock transfers are processed in time for the record date.

• Example 1: Regular Quarterly Dividend

  Imagine "Green Energy Solutions Inc." announces a quarterly dividend of $0.75 per share, payable on August 15th, to shareholders officially recorded as owners by August 1st. The stock exchange sets the ex-dividend date for Green Energy Solutions' stock as July 31st.

  If an investor, Liam, buys 200 shares of Green Energy Solutions on July 30th, he will be a shareholder of record by August 1st and will receive the $150 dividend on August 15th. However, if another investor, Olivia, buys 200 shares of Green Energy Solutions on July 31st (the ex-dividend date), she will not receive that $150 dividend. The seller of those shares to Olivia will receive it instead.

  This illustrates "ex dividend" because Olivia's purchase on July 31st means the stock was trading without the right to the upcoming dividend. The dividend entitlement remained with the person who owned the shares before the ex-dividend date.

• Example 2: Stock Price Adjustment

  "Global Tech Innovations" declares a $1.20 per share dividend. The ex-dividend date is set for November 5th. On November 4th, the stock closes at $125.00 per share. On November 5th, the market opens, and the stock price for Global Tech Innovations immediately adjusts downwards, often by an amount approximating the dividend. So, it might open around $123.80 per share.

  An investor, Ben, sees the stock trading at $123.80 on November 5th and decides to buy 100 shares.

  This demonstrates "ex dividend" because on November 5th, the stock is trading without the dividend. The immediate drop in price reflects that new buyers, like Ben, are no longer entitled to the $1.20 dividend. The market has adjusted the stock's value to account for the dividend being paid to previous owners.

• Example 3: Selling Shares Around the Date

  "Coastal Resorts Group" announces a special one-time dividend of $3.00 per share, with an ex-dividend date of June 10th. A long-term shareholder, Ms. Rodriguez, has owned 300 shares of Coastal Resorts for many years. She decides to sell all her shares on June 11th.

  A new investor, Mr. Kim, buys Ms. Rodriguez's 300 shares on June 11th.

  In this scenario, since the ex-dividend date was June 10th, when Mr. Kim bought the shares on June 11th, the stock was trading "ex dividend." This means Ms. Rodriguez, as the owner *before* the ex-dividend date, will receive the $3.00 special dividend for her 300 shares, even though she sold them shortly after. Mr. Kim, the new owner, will not receive this particular dividend.