The important date is, as you say, the XD date, the stock goes EX as soon as tyhe market opens on that day (not the following day). Theoretically the share price will drop the amount of the dividend, but of course it isn't that simple. There will be many other factors affecting the share price upwards or downwards.
Ex means without and c_um means with so you can work out who is entitled to the dividend when either delling or buying.
When the ctock goes Ex it immediately becomes c_um the next dividend.
Whoa. you need a reality check. Ex div dates don't float. they are set. so just because you own the stock the day after ex-div does NOT qualify you for the next dividend!!!! you MUST own the stock on the date of the Ex dividend. You only need to hold the stock for that one day to get the dividend! However, in order to get favorable tax treatment you need to hold it longer.
Thanks everyone for taking the time to help me understand dividends. There are a gazillion words written about the days preceding the ex-dividend period but my question is about AFTER the ED date. What is the EARLIEST date after XD to get the dividend?
Generally, the price of a stock is not "discounted" by the amount of the dividend (which is declared well in advance). You are confusing stocks with mutual funds. Stock prices are a market mechanism.
You have an incorrect perception of dividends.
Unless it is a cash dividend (the company usually issues stock dividends, but cash dividends are possible as well), the stock will drop by the amount of the dividend on the ex-dividend date. Whether investors immediately buy back in and pump the price back up is entirely up to those investors.
The company can't pay the dividends out of thin air, so they either "sell" a portion of their shares owned (this is actually not entirely accurate, but it's a way for you to understand it), or they pay out from a portion of their own cash on hand (this goes directly to the investor and is separate from the stock).
Note: Short sellers are responsible for paying dividends to the long buyers. Hence, do not short sell unless you know the stock will continue lower, past the dividend price adjustment.
>> You do not need to hold stocks for the entire period prior to a dividend payout. You only need to buy stock just before the ex-dividend date. Even if it's the last minute prior to market close the day before (though, after market hours are fine too).
That is to say, you just need to have an open position held until the ex-dividend date (you cannot close it anytime before the very date is reached).
Once the ex-dividend date is reached, if you do not have an open position, you are no longer applicable for that dividend, even if you buy in pre-market. You must wait for the next dividend.
The record date occurs on the second day after the ex-dividend date (so, if an ex-dividend date is Jul. 1, it would be Jul. 3), not because they want it like that, but because of delay. It takes the company 2-3 days to receive a list of all the people who have a position prior to the ex-dividend date.
So, to answer your title question: 4:00 PM on the day prior to the ex-dividend date, or anytime during after market hours (but not pre-market on the ex-dividend date).
Example 1:
Peter buys into DRI the night before the ex-dividend date. He holds the position (leaves it open) until the next day.
Peter is now eligible for the dividend.
Peter notices that investors immediately bought back in at market open, pushing the price back to par. Peter sells his position, because it pared out, on the ex-dividend date, not long after market open.
Peter is still eligible for the dividend, whenever it's paid out. He effectively made a quick gain of a 55c dividend (DRI actually pays out 55c with its ex-dividend date coming up on Jul. 8; but I'm not endorsing the company or anything), without losing anything, since he managed to pare out.
Example 2:
Parker buys into DRI the day before the ex-dividend date, but decides to close the position after a few cents gain. He doesn't want to risk holding the position in case it does not recover quickly. He closes prior to market close.
Parker is no longer eligible for the dividend.
Parker believes that he could just buy in on the ex-dividend date, if he sees it going up. He thinks that, since the record date occurs two days later, the dividend will still apply for him.
Unfortunately, Parker is already no longer eligible for the dividend, since he did not have an open position prior to the ex-dividend date, so he receives nothing on the payout date. However, he may have made some gain during normal trading conditions, if the stock performed a dead-cat bounce and recovered.
The company sets a date for "Owner of Record" for each dividend. If you are the owner on that date you get the dividend when issued (abut 10 days in the future). Owning the stock on any other dates has no effect.
Your understanding is incorrect. The stock trades without the dividend as of the ex-date. period. dividend goes to whoever owns the stock as of the end of previous trading day. there is no minimum ownership time to collect the dividend.
Background for question: Generally, I understand the price of a stock will be discounted by the amount of the dividend the first trading day after ex-dividend.
Question: If an investor buys the discounted shares on the first day AFTER the ex-dividend period will she become the "Owner of Record" and qualified to receive the dividend for the new dividend period?
Follow up question: How long must she own the shares to qualify for the next dividend payment?
