Some confusion arises about exactly when you have to buy shares to earn the current dividend. There are three key dates to remember: ex-dividend, record date, and payment date.
A stock trade takes three business days to settle. You have to be the "stockholder of record: on the record date in order to earn the dividend. That normally occurs two trading days after ex-dividend date. The term "ex" means "without," and if you buy on or after that date you will not earn the dividend.
So you must buy shares at least one day before ex-dividend date. Three trading days later, you will be recognized as the stockholder of record - even if you sell shares on ex-dividend date. All that matters is that you buy shares on the day before ex-dividend.
For example, Tuesday is ex-dividend date. You have to buy in your "buy" order on Monday at the latest. The trade settles three days later, on Thursday. You can sell those shares on Tuesday or Wednesday, and you will still get the dividend. The stockholder of record is the person who owned shares on Monday.
If this extends over the weekend, remember to count only actual trading days. For example, Monday is ex-dividend date. To earn the current dividend, you have to buy shares by Friday. You will be recognized as stockholder of record on Wednesday, three days later and actual record date.
Some traders believe that you have to hold onto shares until payment date, but for cash dividends this is not true. Those rare cases where dividends are given in extra shares require you to hold longer, but the majority of trades involve cash dividends.
Payment date will occur later, usually between two and four weeks after record date.
These dates are very important if you are timing trades with dividends in mind. Remember, "ex" means "without," so you have to get your order in before ex-dividend date.
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