Ex-Distribution
Table of Contents What Is Ex-Distribution? When an ex-distribution investment, such as a mutual fund or an income trust, starts trading on an ex-distribution basis, the seller (that is, the previous owner) rather than the buyer is entitled to receive the distribution. The ex-dividend date is set the first business day after the stock dividend is paid (and is also after the record date). On the ex-distribution date, the NAVPS of the fund will be $9.50 because the fund shares are now trading without the rights to the distribution. With a significant dividend, the price of a stock will probably fall by that amount on the ex-dividend date.
What Is Ex-Distribution?
A stock or any other asset is termed ex-distribution if it is sold without the right of the new owner to collect a specific scheduled payment, such as a dividend. That right belongs to the previous owner and the price is adjusted accordingly.
When an ex-distribution investment, such as a mutual fund or an income trust, starts trading on an ex-distribution basis, the seller (that is, the previous owner) rather than the buyer is entitled to receive the distribution.
On the ex-distribution date, the security will generally fall in price by an amount equal to the dollar amount of the distribution.
How Ex-Distribution Works
Assume a mutual fund with a net asset value per share (NAVPS) of $10 declares an allocation of 50 cents per share. On the ex-distribution date, the NAVPS of the fund will be $9.50 because the fund shares are now trading without the rights to the distribution.
A mutual fund trading on an ex-distribution basis is indicated in transaction tables in newspapers by the symbol d.
A distribution and a dividend are virtually the same thing. Both are payments to shareholders of a portion of a corporation's profits.
Ex-Distribution vs. Ex-Dividend
Ex-distribution is similar to ex-dividend. Distributions and dividends are both payments to a corporation's shareholders of a share of the profits. The difference is in the terminology used by two types of corporations. C-corporations pay dividends while and S-corporations pay distributions.
Therefore, when a company declares a dividend or a distribution, it sets a date when a shareholder must be on the company's books to receive the payment. If you purchase a stock on or after its ex-dividend date, you will not receive that payment. Instead, the seller gets it. If you purchase before the ex-dividend date, you get the dividend.
Ex-Dividend Example
On Sept. 8, 2020, Company XYZ declares a dividend payable on Oct. 3, 2020, to its shareholders. XYZ announces that shareholders of record on the company's books on or before Sept. 18, 2020, are entitled to the dividend.
The stock will go ex-dividend one business day before the record date.
In this example, the record date falls on a Monday. Excluding weekends and holidays, the ex-dividend is set one business day before the record date or the opening of the market. In this case, that's the preceding Friday.
This means anyone who bought the stock on Friday or after would not get the dividend. With a significant dividend, the price of a stock will probably fall by that amount on the ex-dividend date.
Special Considerations
A company may pay its shareholders a dividend in the form of stock shares rather than cash. The stock dividend may be additional shares in the company or shares of a subsidiary that is being spun off.
The procedure for stock dividends may be different from cash dividends. The ex-dividend date is set the first business day after the stock dividend is paid (and is also after the record date).
Related terms:
Cum Dividend
Cum dividend is when a buyer of a security will receive a dividend that a company has declared but has not yet paid. read more
Dividend
A dividend is the distribution of some of a company's earnings to a class of its shareholders, as determined by the company's board of directors. read more
Ex-Dividend : Examples & Key Dates
Ex-dividend is a classification in stock trading that indicates when a declared dividend belongs to the seller rather than the buyer. read more
Net Asset Value Per Share – NAVPS
Net asset value per share (NAVPS) is an expression for net asset value that represents the value per share of a mutual fund, an exchange-traded fund (ETF), or a closed-end fund. It is calculated by dividing the total net asset value by the number of shares outstanding. read more
Payment Date
The payment date is the date set by a company when it will issue payment on the stock's dividend. read more
Record Date
The record date is the last date in which shareholders are eligible to receive a dividend or distribution. It is established by the company's board. read more