The ex-dividend date is the cut-off that decides who receives a company’s next dividend. If you own the shares before that date, you are entitled to the payment. If you buy on or after it, the dividend goes to the previous owner. It sounds like an administrative detail, but it explains why share prices and even whole indices can drop on certain mornings for reasons that have nothing to do with news, and it affects anyone trading shares, spread bets or CFDs.
The key dates
Dividends involve a short sequence of dates. The declaration date is when the company announces the payment and how much it will be. The ex-dividend date is the first day the shares trade without the right to that dividend. The record date is when the company checks its register to see who the shareholders are. The payment date is when the cash actually arrives.
In the UK, the ex-dividend date usually falls on a Thursday, with the record date on the following Friday. The gap exists because share trades take time to settle. Buying the day before the ex-date gives time for your purchase to be registered by the record date.
Why share prices fall on the ex-date
On the ex-dividend date, a share stops carrying the right to the upcoming payment, so it is worth a little less. All else being equal, the price tends to open lower by roughly the amount of the dividend. In practice other news, market moves and taxes blur the effect, but the adjustment is real and predictable.
That is why buying shares the day before the ex-date simply to collect the dividend rarely works as a free lunch. You receive the payment, but the share price typically falls by a similar amount, and you may face dealing costs and tax on top. Our explainer on dividend yield shows how to think about the income a share actually provides over time.
The effect on the FTSE 100
Because many large UK companies pay generous dividends, the FTSE 100 can be visibly affected when several heavyweights go ex-dividend on the same Thursday. The index can open lower by a number of points that reflects those payments rather than any change in sentiment. Experienced traders check the dividend calendar so that a mechanical drop does not get mistaken for selling pressure.
The same logic applies to futures and to index products offered by brokers, which build expected dividends into their pricing. Knowing when large payments are due helps explain small gaps between cash prices and futures prices.
Dividends on spread bets and CFDs
If you trade shares or indices through spread bets or CFDs, you do not own the underlying shares, but dividends still matter. When a share or index goes ex-dividend, brokers make an adjustment. Long positions usually receive a credit to reflect the dividend, while short positions are usually charged an equivalent amount. The exact treatment varies by broker and product, so it is worth checking the terms before holding positions over ex-dates.
This matters most for short sellers. A trader who is short a high-yielding share across an ex-date will face a dividend charge that eats into any gain. Our guide to short selling covers the other costs worth considering.
Common beginner mistakes
The first mistake is thinking a price fall on the ex-date is a sign that something is wrong with the company. Usually it is just the dividend coming out of the price. The second is buying solely to capture the payment without counting the price adjustment, costs and tax. The third is forgetting dividend adjustments on leveraged positions, especially shorts. The fourth is assuming dividends are guaranteed. Companies can cut or cancel them, often in tough conditions, and a profit warning can be an early signal.
Bringing it together
The ex-dividend date decides who gets paid, and it moves the share price by roughly the value of the payment. Learn the calendar, check how your broker handles adjustments and never confuse a dividend drop with real selling.
If you would like an honest picture of how ready you are to trade shares and indices with a plan, our free trader assessment is a good place to start.
