Shares Going Ex-Dividend Guide

This guide explains the process of shares going ex-dividend. If you are unfamiliar with dividends you may want to check out our Understanding Share Dividends Guide.

The Process

The time line below shows the ex-dividend process.

Dividend Date Guide

Announcement / Declaration Date

On this date the board of directors announces that they will pay a dividend and how much it will be per share. They will also declare a record date and a payment date.

Record Date

It will help to think from a company’s perspective here, let’s ignore the market for a moment. A company has announced it will distribute a dividend to shareholders. Well the company has to ask ‘well, who are our shareholders’?

On the record date the company will look at its shareholder registry (a list of all the shareholders) and it will say ‘ok we’ll distribute the dividends to all of these shareholders’.

Ex-Dividend Date

Let’s now think about what is happening in the market. The Ex-Dividend date is simply the last date that you can buy shares and get on the company’s registry for their record date. It is the date that the shares will no longer trade with any dividends attached. You must have purchased the shares before the ex-dividend date in order to receive the dividend.

The ex-dividend date is a date that only the market cares about. Meaning that from the company’s perspective they do not care about the ex-dividend date, they don’t record anything on their company books on the ex-dividend date.

The ex-dividend date simply exists because it takes a couple of days for share ownership to change. In Australia we follow a T+3 settlement system, where ‘T’ stands for ‘Trade’. Meaning that the ownership of shares will change 3 days after the date the trade was made.

T+3 Example:
John buys some shares on Tuesday. He will actually take ownership of these shares and pay the money for them on Friday (Trade Day (Tuesday ) + 3 (Wednesday, Thursday, Friday)).

Payment Date

This is the date that the dividends are actually paid. Shareholders can usually elect how to receive their dividends and there are 3 common options:

  1. Receive the dividend as a cheque
  2. Have the money credited to their account
  3. Have the money re-invested as part of a Dividend Re-Investment Plan (DRP)