Ex-dividend date

The first trading day on which a share changes hands without the entitlement to a payment that has already been declared. Up to and including the day before, the share trades cum dividend and a buyer acquires the payment along with it. From this date the payment stays with the seller and a buyer acquires the share alone. It is one of the four dates that govern a single dividend, alongside the declaration date, the record date and the payment date, and it is the only one of the four that is visible on a chart.

The company sets the amount and the record date, the day on which the register is read to decide who is paid. Everything else follows from settlement. A purchase reaches the register only once it settles, so the exchange sets the ex-dividend date at the first day on which a purchase would settle too late to be on the register by the record date. That link is mechanical, which is why shortening a market's settlement cycle moves the two dates together: where a trade once settled several business days after dealing, the ex-dividend date sat a business day or more ahead of the record date, and in markets that now settle in one business day the two fall on the same day.

On the day itself the price customarily opens lower by approximately the dividend per share, and exchanges commonly adjust the previous close used as a reference and the orders resting below it. The step is not selling pressure. The entitlement has left the share, and the company is about to hold that much less cash. How closely the fall matches the payment is an old empirical question rather than a settled one: measured drops have on average been smaller than the full dividend, and the candidate explanations, among them the different tax treatment of income and of capital gains, dealing costs, and measurement effects around the opening, have been argued over for decades without resolution.

Two things are commonly misread. The first is that a share bought the day before and sold on the day collects the payment for nothing: the entitlement gained and the price step are approximately the same amount before tax and costs, which is arithmetic rather than a consequence of timing. The second concerns contracts that put nobody on a register. A holder of a share CFD receives no dividend from the issuer and meets a dividend adjustment from the provider instead, credited to the long side and debited to the short. On an index CFD the same thing arrives in pieces, because constituents go ex on different days, which is why such a position accumulates small entries with no obvious event behind them.