Difference between Cum-Dividend and Ex-Dividend

Cum-dividend <CD> comes before Ex-dividend <XD>. A stock is said to be CD indicates that the company is paying out dividend in the near future which serves like a pre-empt notice to investors. The company would have announced the amount of dividend to be paid out but has yet to. If the shareholder sells a CD stock, he/she is not entitled to the dividend.

There has to be a cut off date that the company has to set, so as to confirm the list of shareholders to receive dividend. When the list is finalized, the stock is said to go <XD>. Once <XD> status is declared, the shareholder who sells his/her shares will still be entitled the dividends, while the new owner will not.

Usually <XD> stocks will be accompanied by a drop in stock price, an amount equivalent to the dividend payout. This is consistent and fair – by giving out the dividends, the company’s asset is said to be decreased and hence, the stock price should fall. It is fair to the new shareholders who get the stocks after <XD>, they did not receive the dividends and they are buying into a company with a lower asset. Thus, the bottom line is dividend payout is not a concern for buying or selling of shares.

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