Ex-Dividend (X or XD)

Definition: Ex-Dividend (X or XD)

In financial newspapers and market reports, the symbols ‘X’ or ‘XD’ are used to indicate that a stock or bond is trading ex-dividend or ex-interest, respectively. When a stock is ex-dividend, it is trading without the value of its next dividend payment. Similarly, ‘X’ in bond tables indicates trading without the accumulated interest. This means that investors who buy the security on or after the ex-dividend date are not entitled to receive the most recently declared dividend or interest payment.

Examples

Stock Example: If a company declares a dividend payable on December 15th and announces that the ex-dividend date is December 10th, any shares bought on or after December 10th will not include the dividend payment due on December 15th.
- Before Ex-Dividend Date: Buying shares on December 9th includes the dividend.
- On/After Ex-Dividend Date: Buying shares on December 10th or later excludes the dividend.
Bond Example: If a bond pays interest semiannually and the interest payment is due on June 30th and December 31st, the bond may trade ‘X’ interest for several days leading up to these payment dates.
- Before Ex-Interest Date: Buying the bond includes the upcoming interest payment.
- On/After Ex-Interest Date: Buying the bond does not include the upcoming interest payment.

Frequently Asked Questions (FAQ)

What is the significance of the ex-dividend date?

The ex-dividend date is significant because it determines who will receive the next dividend payment. Investors who own the stock before the ex-dividend date will receive the dividend, while those who purchase on or after this date will not.

How does the ex-dividend date affect the stock price?

Typically, the stock price declines by approximately the value of the dividend on the ex-dividend date, reflecting the fact that new buyers are not entitled to the impending dividend.

Do all securities have an ex-dividend date?

Not all securities have an ex-dividend date; only those that make periodic dividend or interest payments specify an ex-dividend date.

How far in advance is the ex-dividend date announced?

The ex-dividend date is typically announced several weeks in advance of the dividend payment date.

Why do bond tables use the symbol ‘X’?

The ‘X’ symbol in bond tables indicates that the bond is trading ex-interest, meaning without the upcoming interest payment. This helps investors make informed decisions about the exact value they are paying for the bond.

Can dividends be reinvested?

Yes, many companies offer dividend reinvestment plans (DRIPs), allowing investors to reinvest their dividends to purchase additional shares.

What happens if I sell a stock on the ex-dividend date?

If you sell a stock on the ex-dividend date, you still receive the dividend because you were the owner of record before the ex-dividend date.

What is a Record Date?

The Record Date is the cut-off date established by a company to determine which shareholders are eligible to receive a dividend or distribution.

Dividend Yield: The dividend yield is a financial ratio that shows how much a company pays out in dividends each year relative to its stock price.
Record Date: The date on which a company reviews its records to determine its shareholders of record and entitlement to a dividend or distribution.
Payable Date: The date on which the dividend is actually paid to shareholders.

Online References and Resources

Suggested Books for Further Studies

“The Little Book of Value Investing” by Christopher H. Browne: A great starter book for understanding the basics of value investing, including dividends.
“The Intelligent Investor” by Benjamin Graham: A classic book that includes comprehensive discussions on investment principles, including dividend investing.
“Common Stocks and Uncommon Profits” by Philip Fisher: Focuses on assessing the value of stocks and the importance of understanding dividends.

Fundamentals of Ex-Dividend: Investment Terms Basics Quiz

### What does the 'X' symbol in financial newspapers indicate? - [ ] It indicates that a stock is currently offering extra dividends. - [x] It indicates that a stock or bond is trading without its next dividend or interest. - [ ] It indicates that the stock price has been split. - [ ] It indicates that the company is under financial restructuring. > **Explanation:** The 'X' symbol indicates that a stock or bond is trading without the right to its next dividend payment or interest, respectively. ### If you purchase a stock on its ex-dividend date, will you receive the upcoming dividend? - [ ] Yes, you will receive the upcoming dividend. - [x] No, you will not receive the upcoming dividend. - [ ] Yes, but only a partial amount. - [ ] It depends on the company's policy. > **Explanation:** If you purchase a stock on its ex-dividend date, you will not receive the upcoming dividend because the dividend entitlement is determined by those who owned the stock before the ex-dividend date. ### How is a stock price expected to behave on the ex-dividend date? - [x] The stock price generally decreases by approximately the amount of the dividend. - [ ] The stock price remains the same. - [ ] The stock price generally increases by approximately the amount of the dividend. - [ ] There is no predictable behavior for the stock price. > **Explanation:** On the ex-dividend date, the stock price generally decreases by the amount of the dividend because new buyers will not receive the upcoming dividend. ### Which date determines shareholders eligible for the next dividend payment? - [ ] The announcement date - [x] The record date - [ ] The payment date - [ ] The settlement date > **Explanation:** The record date is the date that determines which shareholders are eligible to receive the dividend payment. ### What does the XD symbol signify in financial reports? - [ ] Ex-date - [x] Ex-dividend - [ ] Ex-interest - [ ] Ex-change > **Explanation:** The XD symbol signifies ex-dividend, indicating that the stock is trading without the right to the declared dividend. ### Why might an investor prefer to buy a stock just after the ex-dividend date? - [x] The stock price is generally lower due to the deduction of the dividend amount. - [ ] They prefer immediate receipt of dividends. - [ ] They do not want to deal with taxes on dividends. - [ ] Companies offer additional shares during this period. > **Explanation:** An investor may prefer to buy a stock just after the ex-dividend date because the price typically decreases by the amount of the dividend, effectively lowering the entry price. ### Can dividends be reinvested automatically? - [x] Yes, through Dividend Reinvestment Plans (DRIPs). - [ ] No, dividends must always be paid out in cash. - [ ] Yes, but only within tax-sheltered accounts. - [ ] No, the company does that at its discretion. > **Explanation:** Many companies offer Dividend Reinvestment Plans (DRIPs) that allow investors to reinvest their dividends automatically to purchase additional shares. ### What is a Payable Date in terms of dividends? - [ ] The date the company announces its dividends. - [ ] The date shareholders must own the stock to receive the dividend. - [x] The date the dividend is actually paid to shareholders. - [ ] The date the stock goes ex-dividend. > **Explanation:** The payable date is when the dividend is actually paid to shareholders who were on the record date list. ### How often are ex-dividend dates announced for stocks with regular dividends? - [ ] Annually - [x] Quarterly, for most stocks - [ ] Monthly - [ ] Every five years > **Explanation:** For most stocks with regular dividend payments, ex-dividend dates are announced on a quarterly basis. ### What happens if you sell a stock on the ex-dividend date? - [x] You still receive the dividend since you owned the stock before the ex-dividend date. - [ ] You forfeit your dividend entitlement immediately. - [ ] You receive a prorated dividend. - [ ] It depends on the brokerage's policies. > **Explanation:** If you sell a stock on the ex-dividend date, you still receive the dividend payment, as you were the owner of record prior to the ex-dividend date.

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