You must choose your selling date carefully if you own a stock that pays a dividend. Otherwise, even if you receive the dividend, you may forfeit the full share price. It's all a matter of timing, centered around something known as an "ex-dividend date." This all-important date, which precedes the record date (the date by which you're the owner of record) by two business days, determines whether you receive a dividend and/or the full share price. If you sell on the ex-dividend date, what happens is that the share price is reduced by the amount of the dividend.
You may be able to receive dividends and recoup the price drop of your shares by holding your stock until after the date of record and waiting for the next ex-dividend date.
Evaluating the Record Date
You must know the record date for any dividend stock you own. This date indicates when you must own the stock (be the owner of record) to qualify for the dividend. The company that issued the stock will note who is on the books as a shareholder on that date, and only those shareholders can receive dividends. You must research each company to determine specific record dates, because each firm sets its own calendar.
While you will encounter few problems if you own only one stock, you may have to pay extra attention with a portfolio of several stocks, because each may have different record dates.
Understanding the Ex-Dividend Date
Two business days before the record date, the stock enters the “ex dividend” period. The stock exchanges or the National Association of Securities Dealers sets this date. You can sell the stock after the ex-dividend date and still receive the dividend. The buyer will not get the dividend if the purchase occurs after the ex-dividend date.
Note that the ex-dividend date occurs two business days before the record date, so a stock with a record date that falls on a Tuesday would actually have an ex-dividend date that falls on the previous Friday.
Exploring Price Changes
If you sell the stock after the ex-dividend date, you might think you would make more money. Many sellers imagine they will get the dividend plus full price for the stock. In practice, the stock actually drops in price by the amount of the dividend once the ex-dividend date passes. If you sell the stock at that time, you do get your dividend, but you get less for the stock because the dividend is subtracted from the stock price.
When To Sell Your Dividend Stock
If you wait until after the date of record, you can watch for the stock’s price to rise again. Typically, a stock will rise by the dividend amount shortly before the next ex-dividend date. If you wait until this period to sell your stock, you may get a better price, although you will become ineligible for the next dividend because you sold the stock before the next ex-dividend date.
In short, if you want to get your dividend and get full price for your stock, you can hold the stock through the ex-dividend date and wait to sell it until the next ex-dividend date approaches. You risk the possibility that the stock price will go down because of some problem with the company, but if you feel the company is healthy, you may profit from waiting for the stock price to rise in anticipation of the next dividend.
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