Buying stock before the ex-dividend date is easy as long as basic rules are followed. The day count is important so that the investor clearly owns the stock on the ex-dividend date. That means that the stock must be purchased no later than the day of record. Remember that you must be the registered owner of the stock on the ex-dividend day even if you sell the stock later the same day.
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Look for the announcement of a dividend by a company with publicly traded stock or the dividend of a mutual fund. At the time of the announcement, the company will also announce an ex-dividend date. It is the shareholder of record on the ex-dividend date who receives the dividend.
Note that stock dividends are usually issued quarterly. Mutual fund dividends are issued annually. At the time of the mutual fund declaration, there will also be a declaration of capital gains. The capital gains distribution will include long-term and short-term amounts. The price of the mutual fund will decline by the total amount of gains and the dividend amount paid.
Note that you must be the shareholder of record on the ex-dividend date to receive the dividend. This does not mean you can buy the stock on the ex-dividend date to receive the dividend. The trade must have settled, money must have been exchanged and the title to the stock must have been moved to your name. Most exchanges use a three-day settlement period before ownership of the stock is in your name on the ex-dividend date. Thus, the date of record, the latest date to buy the stock, would be three business days before the ex-dividend date.
Know the payout date for the stock. It is the date that the ex-dividend owner will receive payment for the stock. Payout dates usually occur in about three weeks for stocks. Mutual fund ex-dividends usually come in the fourth quarter of the year, and the payout date is January of the following year.
Note that stock spin-offs and stock splits occur under the same rules as ex-dividend payments. Because stock spin-offs have different tax considerations it is important that investors consider these facts on or before the day of record. Also, note that call options do not pay dividends. A popular strategy is to exercise options on the date of record and take delivery of the stock at the same time. This way, dividends can be received on the ex-dividend date..
Tips and warnings
- Dividend strategies are straightforward investment techniques. They are good strategies for beginning investors.
- If you have any questions, your broker should be able to answer them.
- Do not trade real dollars without "paper" or practice trading first.
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