Company Dividends Payout

While looking for more information of the dividends payout of few stock I’m holding. Here a comprehensive explanation.

There are 2 terms that investors have to know about dividends. One is cum-dividend which has a short form of “CD”. The other one is Ex-dividend which has a short form of “XD”.

Cum-dividend means if you purchase this stock during the period when it is showing “CD”, you are entitled to the dividend payout that the company had declared.

Ex-dividend means if you purchase this stock during the period when it is showing “XD”, you are not entitled to the dividend payout that the company had declared.

To assist superior understanding, we have drafted 3 different kinds of situations to illustrate on dividend payout. Please note that the mentioned examples herein are all hypothetical.

Stock A has just announced good earnings and decided to declare 5cents dividends on Monday. Stock A will start to trade “CD” on Tuesday and going Ex-dividend on Friday.

Case 1: You did a fundamental analysis and found that Stock A is a good investment. So you proceed to purchase on Tuesday. In this case, you are entitled to the dividend payout.

Case 2: You are an active stock trader and concluded that the chart pattern of Stock A has fulfilled your criteria of a good buy. You purchase on Tuesday, however, the share does not perform to your expectation and you went on to sell your shares on Thursday. In this case, you are NOT entitled to the dividend payout.

Case 3: You are an active stock trader and concluded that the chart pattern of Stock A has fulfilled your criteria of a good buy. You purchase on Tuesday and after holding for several days, the stock underperformed but it has yet to reach your stop loss price. Eventually you decided to sell your stocks on Friday. In this case, you are entitled to the dividend payout.

In short, if you purchase a stock on “CD” and sell on “XD”, you are entitled to dividends. But if you purchase on “CD” and sell on “CD” before “XD”; and/or purchase on “XD”, you are not entitled at all.

source : http://www.cfpe2004.org/2011/03/basic-knowledge-on-trading-singapore-stocks-that-every-investor-should-know/

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