The Bull

Sunday 21

October, 2018 8:33 AM



Stocks question

What does it mean when a share goes ex-dividend?

What does it mean when a share goes ex-dividend? Shares drop after ex-dividend

To explain what it means when a share goes ex-dividend, we should first understand what a dividend is. A dividend is a taxable payment which is given to shareholders by the company they are invested in. Dividends are usually paid as cash (in the form of a cheque or by EFT if requested), however, they can also take the form of stock, allowing a shareholder to own a bigger share of the company they have invested in.

When a share has gone ex-dividend it means that this payment has already been credited to the holder of the shares. If the shareholder then selects to sell these shares the buyer would not be eligible to receive this payment and would have to wait until the next dividend payment.

As an investor a decision needs to be made on if shares should be purchased within the dividend period or after the share has gone ex-dividend, both have pros and cons as follows:

Generally, a stock’s price will drop the day the ex-dividend period starts, this allows the potential buyer of the shares to purchase at a lower price which is an incentive as they will not receive the benefit of the dividend payment until the next dividend date. However, if the investor decides they want to buy the shares prior to them becoming ex-dividend they will normally be paying a premium but they will also benefit from the dividend payment.

 


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