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Investing Terminology - Ex-Dividend Date

The Ex-Dividend date is the date on which a trade to purchase a security does not entitle the purchaser to an upcoming dividend associated with the security. It is usually (on the current trade clearing schedule) two business days before the record date for the dividend. This is so because it presently takes three business days for a stock transaction to settle. If the stock is purchased before the ex-dividend date then the trade will settle by or on the record date and the buyer received the dividend. If purchased on or after the ex-dividend date, then the trade does not settle by the record date and the seller collects the dividend. In most cases, the dividend will be payed significantly after the record date (often several weeks to a month later), but it will be paid to the owner of record on the record date.

Usually on the ex-dividend date the stock will open at a price that reflects a deduction for the amount of the pending dividend. This makes sense, as one could otherwise make sigificant gains by chasing dividends, purchasing stocks before the go ex-dividend and selling them afterwards. One can sometomes follow this stratgy despite the deduction for certain stocks, especially those with some voloatility in stock price, and which tend to be traded for growth instead of dividends. For such stocks, the price will often recover ex-dividend in several days or a week, allowing one to sell the stock at close to the pre-ex-dividend price, and move on to do the same in another stock. Whether this will work depends a lot on the particular stock involved, as well as general market conditions. .