Published Apr 7, 2024 The term cum dividend refers to a stock that is sold with the right of the buyer to receive the dividend for the current dividend period. The word “cum” is a Latin word for ‘with’. Therefore, when a stock is in the ‘cum dividend’ phase, it means that anyone who purchases the stock during this period will be entitled to the dividend. Once the stock moves into the “ex-dividend” phase, new buyers will not receive the dividend for that period. Consider a company named “FastTech” which has announced a dividend payment date on the 15th of July. The ex-dividend date is set for the 1st of July. This means that any investor who purchases FastTech shares on or before the last day of June will buy the shares cum dividend. In simpler terms, they will be entitled to receive the dividend declared for that period. However, if an investor purchases the shares on the 1st of July or after, they will not receive the dividend, as the shares would then be considered ‘ex-dividend’. The cum dividend status of a stock is important for investors for several reasons. Firstly, it influences the timing of stock purchases, especially for dividend-focused investors seeking to maximize their income from dividends. Understanding the dividend timeline helps investors make informed decisions about when to buy a stock to ensure they qualify for dividend payments. Secondly, stock prices typically drop by approximately the value of the dividend on the ex-dividend date. As such, understanding the cum dividend and ex-dividend status helps investors to anticipate and understand the reasons behind stock price movements. It’s also crucial for investors who are planning to sell a stock and want to benefit from the dividend payment before doing so. When a stock moves from cum dividend to ex-dividend, its price is typically expected to decrease by roughly the amount of the dividend. This is because the value of the upcoming dividend payment is no longer included in the price of the stock, reflecting the fact that new buyers will not receive this dividend. The cum dividend date refers to the period when the stock is sold with the dividend, allowing the buyer to receive the declared dividend. On the other hand, the record date is set by the company as the date when you must be on the company’s books as a shareholder to receive the dividend. There’s also the ex-dividend date, typically one business day before the company’s record date, after which the stock is sold without the dividend entitlement. Yes, an investor can sell the stock on or after the cum-dividend date but before the ex-dividend date and still receive the dividend. This is because they owned the stock during the cum-dividend period and will be on the company’s books by the record date. However, selling the stock on the ex-dividend date will not entitle the seller to the dividend, as the sale will be processed and the buyer will be recorded as the shareholder by the record date. Understanding the cum dividend status is essential for investors focusing on dividend income, as it influences their buying and selling strategy. It is an integral part of dividend investing, providing opportunities to accrue additional income or strategically time the sale of holdings.Definition of Cum Dividend
Example
Why Cum Dividend Matters
Frequently Asked Questions (FAQ)
What happens to the stock price when it moves from cum dividend to ex-dividend?
How is the cum dividend date different from the record date?
Can an investor sell the stock on the cum-dividend date and still receive the dividend?
Economics