The Ex-Dividend Date
As investors, we should be looking at the performance of our holdings from a total return point of view. Total return means not only the increase (or decrease) of the security itself, but also the income you receive in the form of dividends or interest. Whenever you’re ready to sell a position or are rebalancing to take some of the asset’s growth, keep the dividends in mind as well.
Whenever a company is ready to pay out a dividend, they need to see who holds the asset. They set a date of record which is the day they identify the shareholders who are eligible to receive the dividend. The day before the date of record is the ex-dividend date. This is the cut off day. If you buy on this day, you won’t be receiving the dividend. The dividend will go to the seller instead. The dividend typically winds up getting paid out a week or more after the date of record.
So, if you’re purchasing a security and want that dividend, you’ll need to buy it at least two days before the date of record, meaning, the day before the ex-dividend date. Your aim is to get on their books showing you hold the security, so you’ll need to buy before the ex-dividend date.
If you’re selling a security and want the dividend, you’ll want to hold on to it at least until the ex-dividend date. You do not have to hold it through the pay date to receive the dividend. Your aim is to just to stay on their books showing you still hold the security. Once you’ve reached the ex-dividend date, you’re good.
Dividends are a part of your total return, so it is wise to take a peek to see when the next ex-dividend date is before you sell. If it’s coming up soon, you might want to wait a couple days to sell in order to grab that dividend. If it’s a few weeks out and you need the proceeds for something specific, it’s probably not worth risking the volatility or fluctuations in the stock price.
Watching the ex-dividend date to capture that last dividend is something to keep in mind, but don’t let that be a huge factor in your decision when to sell. Most people don’t succeed trying to time the market. But if you’re very close to the ex-dividend date when you’re thinking of selling, might as well grab that money and add to your total return!