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"I recently bought a stock that pays a high dividend and I'm trying to understand what the 'ex-dividend' is. What exactly does 'ex-dividend' mean and what is the record date. Thanks a lot!"
Happy to help! The answer is not as complicated as you'd think. The record date of a stock and the ex-dividend dateare both really important terms because they describe which investors receive dividends and when.
Firstly, the 'Record Date' is set by the board of directors of a corporation and refers to the date by which investors must be on the company's books in order to receive dividends for a particular stock. Record dates basically serve as notice to the board of directors of the people to whom they should send stock reports and other financial information relating to the investment.
On the other hand, the 'Ex-Dividend Date' is dictated by stock exchange rules and is usually set to be two business days before the record date. In order for an investor to receive a dividend payment on the listed payment date, he would have to have his stock purchase completed by the ex-dividend date. If the stock sale has not been completed by the ex-dividend date, then the seller on record is the one who receives the dividend for that stock.
So, for example, if a record date is set for May 30th, the ex-dividend date would typically be set for the 28th of May. However, if May 30th is a Monday, the ex-dividend date would then be Thursday, May 26th. If the buyer has not completed their purchase of the stock by May 28th, they will not receive a dividend.
This is basically meant to make sure that people don't buy stocks short term just to get a dividend and then turn around and sell it. Dividends don't work like that. This is why value investors typically hold stocks that pay dividends over time because they generate additional income.
Additionally, companies may pay out dividends in several different ways, including cash dividends, stock dividends or property dividends.
Cash dividends are the most common type of disbursements and are typically sent to stockholders via check or direct deposit.
Stock dividends are paid out in the form of company shares.
With property dividends, a company offers stockholders certain physical assets, such as the company's products, though these dividends are rarely given out by companies.
More on dividend types for another day, but hope this provides some clarification for you!
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