An ex-dividend stock is a stock which has passed its ex-dividend date but has not passed its payable date. When you purchase an ex-dividend stock, you do not receive that stock’s dividend for that year.
The price of shares in an ex-dividend stock is typically low compared to their price ahead of the ex-dividend date because no dividends will be paid out on those shares until one year later. As a general rule, the price of an ex-dividend stock is equal to its previous price, minus the dividend. However, this is not always the case.
Before investing in a stock, it is important to understand whether it is ex-dividend stock. This can be determined by reviewing the ex-dividend date of that stock, as announced by the issuing company.
For buy-and-hold investors, buying ex-dividend stock can make sense because their prices tend to be lower than they would otherwise be. For mid-term investors who do not expect to hold the stocks for at least one year, buying ex-dividend stocks means foregoing dividends and relying fully on capital gains to make a profit on investments.
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