You must choose your selling date carefully if you own a stock that pays a dividend. The dividend you receive will affect the selling price, and you can be disappointed in your overall return if you sell at the wrong time. Learn the important dates in the life of a stock that pays a dividend so you won’t sell at the wrong time. The date you sell can affect your eligibility for receiving dividends as well as the amount you receive from the sale.
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.
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.
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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