What Happens on the Ex-Dividend Date?
The ex-dividend date is one of the most important concepts for anyone investing in dividends. It determines whether or not you qualify to receive an upcoming dividend. Understanding this date helps prevent confusion when share prices suddenly fall, and ensures you receive dividends you are expecting.
What Is the Ex-Dividend Date?
The ex-dividend date (often written as simply the ex-date) is the date on which a company's shares begin trading without the right to the next dividend. If you buy shares on or after this date, you will not receive the upcoming dividend.
To receive the dividend, you must:
- buy the shares before the ex-dividend date
- and still hold them when the market opens on the ex-dividend day
The ex-dividend date is almost always set one business day before the record date.
Why Does the Share Price Fall?
On the morning of the ex-dividend date, the share price typically drops by roughly the amount of the dividend. This happens because new buyers are no longer entitled to that dividend, and therefore the value of owning the share is slightly lower.
For example:
- Company declares a 10p dividend
- Shares close at £5.00 the night before
- On the ex-dividend morning, shares may open around £4.90
The actual price movement may differ depending on market conditions, but the principle remains the same.
Ex-Dividend Date vs Record Date vs Payment Date
These terms are often confused, but they serve different purposes:
- Declaration Date – The company announces the dividend.
- Ex-Dividend Date – Cut-off for new buyers. Buy before this date to receive the dividend.
- Record Date – The company checks its shareholder register.
- Payment Date – When the dividend is actually paid to investors.
UK brokers handle the admin automatically — you do not need to "prove ownership" manually.
What Happens If I'm Trading Spread Bets or CFDs?
If you hold a leveraged position (such as a spread bet or CFD) when a share goes ex-dividend:
- Long positions are typically credited the dividend amount.
- Short positions are typically debited the dividend amount.
This is to offset the fall in the underlying share price. Although each provider may vary slightly, the adjustment usually reflects the same figure as the underlying dividend.
Interactive: Will I Receive This Dividend?
Enter the date you purchased the shares and the company’s ex-dividend date to see whether you're eligible.
Summary
The ex-dividend date determines whether you qualify to receive a dividend. To be eligible, you must buy shares before this date. On the ex-dividend day, the share price usually drops by about the dividend amount.
Understanding ex-dividend mechanics is essential for income investors, especially if you actively trade shares or hold positions close to dividend dates.