Dividends are a way for companies to share their profits with people who own their stock. But to receive a dividend pay-out, timing is key. Let’s break down what dividends are and the important dates you need to know if you're investing in the Indian stock market.
What is a Dividend?
A dividend is a payment made by a company to its shareholders from its profits. When a company grows and decides to go public, it allows people to buy its shares through an Initial Public Offering (IPO). Once people buy shares, they become shareholders and can receive dividends from the company’s profits. These payments are often made regularly, such as every three months or once a year.
What is the Ex-Dividend Date?
The ex-dividend date is an important date for anyone buying stocks. It’s the deadline by which you must own the stock to get the next dividend payment. If you buy the stock on or after this date, you won't get the upcoming dividend; the previous owner will.
- Understanding the Ex-Dividend Date: This is the first business day after which new stock buyers become ineligible for the upcoming dividend pay-out.
- The Deadline: If you purchase a stock before the ex-dividend date, you'll be included in the company's record of shareholders who receive the dividend.
- Buying After the Ex-Dividend Date? No Dividend for You: Purchasing shares on or after the ex-dividend date means you won't be eligible for the upcoming pay-out. The seller in this case will receive the dividend.
So in simple words, If you purchase a stock before the ex-dividend date, you're considered a shareholder of record. This means you'll be entitled to receive the next dividend pay-out.
If you buy the stock on or after the ex-dividend date, you won't be eligible for the upcoming dividend. The seller in this case will receive the pay-out.
How it Affects Share Prices
When a stock goes ex-dividend, its price usually drops by the amount of the dividend. For example, if a company pays a ₹10 dividend and the stock price was ₹1000, it might drop to ₹990 on the ex-dividend date. This drop happens because the dividend is no longer included in the stock price.
Difference between the Ex-Dividend Date and the Record Date
- Ex-Dividend Date: The last day you can buy the stock to be eligible for the next dividend. If you buy the stock on or after this date, you won’t get the next dividend.
- Record Date: The date the company checks its records to see who owns the stock and is eligible for the dividend. To be on this list, you need to have bought the stock before the ex-dividend date due to the two-day settlement period (T+2).
Key Dates for Dividends
There are three key dates to remember when it comes to dividends:
- Ex-Dividend Date: The last day to buy the stock to get the next dividend.
- Record Date: The day the company looks at its records to see who gets the dividend.
- Payment Date: The day the company actually pays out the dividend to shareholders.
Conclusion
Knowing about dividends and the important dates can help you make better decisions when investing in stocks. The date is especially important because it determines whether you get the next dividend payment. By keeping track of these dates, you can manage your investments more effectively.
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