Interactive Investor

Don’t be shy, ask ii…should ex-dividend dates affect when I buy shares?

29th April 2021 16:21

Keith Bowman from interactive investor

Whether you want to find out how to start investing or how the stock market works, don’t be shy, ask ii.

Jack Pearson asks: could you please explain what exactly ex-dividend means and how this may affect the timing of when one decides to buy shares in a company?

Keith Bowman (pictured above), equity analyst, interactive investor, says: the ex-dividend, or XD, date denotes when you will be buying shares in a particular dividend-paying company without the right to the latest dividend – so, excluding the dividend.

If you purchase a share before the ex-dividend date and still own it on the ex-dividend date, you will receive the latest dividend payment. If you purchase a stock on its ex-dividend date or after, you will not receive the next dividend payment. Instead, the seller gets the dividend.

The ex-dividend date, which is normally a Thursday, can be days or weeks after a company announces any intended dividend payment, typically alongside its half-year and annual financial results.

You can find the ex-dividend date on a company’s own investor relations website, where many have an area dedicated to dividend details.

Click here to see how Legal & General sets out its own dividend page. 

It is also available on investment websites like interactive investor, where a Week Ahead article, published on a Friday, highlights some of the stocks going ex-dividend the following week. 

All things being equal, the share price will decline on the ex-dividend date by the value of the dividend. So, if a company is paying a dividend of 6p per share, and if the shares were trading at 100p at the close of business the day before they go XD, the price of the shares would be 94p on the XD date.Investors seeking income might buy shares before the ex-dividend date, having done all their usual research before purchasing. However, there may be reasons that an investor would rather not receive income, perhaps for tax purposes. In this case, they might sell ahead of the ex-dividend date.

Someone who is looking to buy but is interested in a capital gain rather than income, might wait until the ex-div date to buy the shares, especially if a larger dividend is being paid. Remember, though, that markets can be volatile, and timing your entry into a stock based on certain dates in the diary carries a risk that the share price moves against you.

Investors with a longer-term view are unlikely to trade shares in a company they want to keep owning, just because of ex-dividend dates. They will likely hold the shares for years uninterrupted. Most welcome continuous income generation, which can be a key driver of investment growth when used to buy more shares in the same company. Dividend reinvestment costs just 99p on the interactive investor website. 

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.