Ex-Dividend
A friend asked me about ex-dividend in relation to the following news release:
Ex-Div's To Lower DJIA by 11.45
The Dow Jones Industrial Average will be lowered by 11.45 Tuesday when shares of Boeing Co (BA), Exxon Mobil Corp (XOM), General Motors (GM), Pfizer Inc (PFE) and International Business Machine (IBM) go ex-dividend. Boeing Co pays a quarterly dividend of 25 cents, Exxon Mobil Corp pays a quarterly dividend of 29 cents, General Motors pays a quarterly dividend of 50 cents, Pfizer Inc pays a quarterly dividend of 19 cents and International Business Machine pays a quarterly dividend of 20 cents.
What is Ex-Dividend?
The ex-dividend date is the first day the stock trades without the dividend---hence the term ex-dividend. If you buy the stock on that or a later date, you will not be eligible for this dividend.
The ex-dividend date, which is necessary for bookkeeping purposes, is two working days before the record date. The record date---all stockholders who are on record as owning the stock on that day will receive the dividend.
When you buy a stock, you have three working days in which to pay for it. On the third day, ownership is transferred from the seller to the buyer when the transaction is recorded in the corporate books. If you buy on the ex-dividend date or on the days between the ex-dividend date and the record date, there will not be time for the transaction to be completed by the record date.
The ex-dividend date informs you of this and lets you know that you will be buying the stock without receiving the dividend. On the ex-dividend date the price per share drops by an amount equal to the dividend per share because people who buy on this date will not receive the dividend. Since they will not receive the dividend, they are unwilling to pay the full price for the stock.
In contrast, if you sell your stock between the ex-dividend date and the record date, you, the seller, will receive the dividend. This is because there is not enough time---the required three days---between the date of sale and the record date for the transaction to be completed, recorded, and for your name to be deleted from the company ownership records. However, what you gain through retaining the dividend is lost through a proportionately lower stock price at the time of sale on the ex-dividend date. It all evens out.
from my book---Stock Market Investing Made E-Z---page 31.
Thanks, L for the question.
6:28:57 PM 
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