How do ex-dates work?

This is a great question, and one that usually finds its way into my inbox whenever Semirara Mining and Power [SCC 31.95, down 0.6%; 114% avgVol] declares a dividend. To understand what an ex-date is, we first need to understand that a stock is really just a bundle of rights that (usually) include the right to dividends, the right to vote on major company decisions, the right to a residual claim on the company’s assets in the case of liquidation. There are a lot of other rights that could be included there, but those are the big ones. When a company declares a dividend, it declares a dividend to each share--not to any specific shareholders--so the issue that arises when the shares can be freely traded on the exchange is obviously going to be: who gets the dividend? The ex-date solves that problem. The “ex” part means “without”, so just think of this date as the “without dividend date”. If the most recent SCC dividend has an ex-date of October 28, that means anybody who purchased the stock on October 28 (or later) bought the stock “without dividends” attached. To be eligible to receive the dividend, you would have had to purchase the SCC shares before October 28. Since October 28 was a Monday, in this case, that would have meant owning SCC shares by the end of the trading day on Friday, October 25.

MB bottom-line: It’s my opinion that ex-dates are the scariest part of the dividend investing learning curve. My first attempt to buy a stock for a dividend was when I was in my 20s, and I bought the stock on the ex-date thinking that I was a financial genius. It was heartbreaking and demoralizing to realize, weeks later, that all I did was buy the underlying stock. No sweet dividends rained down upon my portfolio. Only shame. I think the ex-date complication is more pressing for traders who are looking to run some kind of “dividend capture” trading strategy, where one might buy the stock just before the ex-date and sell it soon after when the price adjusts. But there aren’t many of these traders. If you’re like me--the new me, not the old ex-date buying me--then you are mostly likely to simply sit on your dividend-generating stocks for months and years at a time and ex-dates don’t even cross your mind.

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