The ex-dividend date is the day that determines whether the seller or buyer of shares receives the next dividend distribution. Buying or selling shares of dividend stocks early or late could cause an investor to miss the ex-dividend date and a corresponding dividend distribution that shareholders otherwise would receive.
Ex-Dividend Date, also known as the ex-date, is when the security’s trading price is reduced by the amount of the upcoming dividend distribution. Investors who buy the security after the ex-dividend date are not eligible to receive the current dividend distribution. In case of an ex-dividend day transaction, the seller of the security will receive the dividend payout.
The ex-dividend date is used as the sole basis to determine who will receive payment of an upcoming dividend distribution. The SEC’s requirement is that an investor must be included in the company’s list of shareholders, which is compiled and finalized as of the company’s record date, to receive the dividend.
The ex-dividend date is set in relation to the record date. The long-standing rule that the ex-dividend must be two days prior to the record date has been changed to align with the new SEC policy of a T+2 settlement period that came into effect on September 5, 2017. The new requirement is that the ex-dividend date must be one business day prior to the record date.
Therefore, a company’s board of directors will pick the record date, which will determine shareholder eligibility to receive the dividend payout. Subsequently, the ex-dividend is set for the day prior to the record date and announced to the shareholders.