Understanding Ex-Dividend Stocks: A Beginner's Guide

If you plan on getting involved in the stock market, you will need to have an understanding of what ex-dividend stock is. Here are the basics of ex-dividend stock and how it can affect you as an investor.

Ex-Dividend Date

Many stocks will issue dividends to shareholders. When a company decides to issue a dividend, it will announce an ex-dividend date. On this date, anyone who owns a share of that company's stock will receive a dividend when the dividend is issued.

Implications

In order to receive a dividend, you do not necessarily have to own the stock on the day that the dividend is issued. You have to be the owner only on the ex-dividend date. This means that some individuals will keep the stock through that date and then sell it. This will provide them with a dividend, and they can liquidate their share. This is known as ex-dividend stock. 

As an investor, you should realize that ex-dividend stock's value is usually lower than the stock value was before the ex-dividend date. Typically, the price of the stock will go down by the amount of the anticipated dividend to shareholders. If you plan on holding the stock for the long term, this can be a good time to buy.