Ex-Dividend Date and Dividend Pay Date

In the previous article Introduction to Dividend Yield, we talked about several investment strategies that are based on dividend yield. Since part of the strategies are based on the amount of dividend you receives, it is important to know the difference between stock ex-dividend date and dividend pay date. the reason is that because stocks are constantly traded and hence the ownerships are constantly changed. Joe bought stock XYZ in Jan, 1 and sold it in Feb, 1 to Mary. In Mar, 1, Mary sold it to Peter. If stock XYZ is going to pay the dividend in April, 1, Who is in title to receive the dividend?

What is Ex-Dividend Date

The ex-dividend date sometimes is called the reinvestment date.  It is the date to determine if you will be in title to receive the dividend of the stock you own. The official definition from IRS is “the first date following the declaration of a dividend on which the buyer of a stock is not entitled to receive the next dividend payment”. Probably you are still confused. Simply put, it means that if want to be in title to receive the dividend of the stock XYZ, you have to buy this stock before ex-dividend date. If you buy the stock XYZ on or after ex-dividend date, you won’t be in title to receive the dividend.

What is Dividend Pay Date

In terms of dividend pay date, it is much straightforward. It is the date that dividend is actually paid to the stock owner that are in title to receive the dividend

In Practice

In the previous article Introduction to Dividend Yield, we mentioned about the strategy that invests in stocks that have the highest dividend yield. By using Stock Fundamental Data Download, we can sort the stock by its dividend yield as following



So currently stock T (AT&T) has the highest dividend yield among Dow Jones stocks with Ex-Dividend Date Jan, 6 and Dividend Pay Date Feb, 1. That means if you want to be in title to receive the next dividend payment paid by AT&T in Feb, 1, you have to buy the stock before Jan, 6
You might think about buy AT&T stock in Jan, 5 then sell in Jan, 6. In that way, you can receive the next dividend simply by holding the stock one day. However, because it is public information and everyone knows about it, the stock price already factors in this information so when you try to sell AT&T stock in Jan, 6. the stock price should have already reduced by the dividend amount that is going to be paid in Feb, 1