The day a dividend is approved by a corporation's board of directors, the amount of the dividend becomes a liability in accounting terms. At the end of the trading day, the stock price is adjusted to account for the dividend payout, and the new price is termed the ex-dividend price. The ex-dividend price is the closing stock price reduced by the price per share of the cash dividend. Performing the calculation is relatively straightforward.
Find the price of the stock at the close of the trading day. For example, assume a stock with a price of $50 a share.
Find out the value of the cash dividend paid out. Assume for the purposed of this example, that the per-share cash dividend is $2.
Deduct the dividend amount from the stock's closing price. In this example, $50 minus $2 equals $48. The adjusted price of the stock is $48.
- U.S. Securities and Exchange Commission: Ex-Dividend Dates
- Office of Investor Education and Advocacy. "Ex-Dividend Dates: When Are You Entitled to Stock and Cash Dividends?" Accessed Aug. 1, 2020.
- Office of Investor Education and Advocacy. "Dividend." Accessed Aug. 1, 2020.
- Office of Investor Education and Advocacy. "Stocks." Accessed Aug. 1, 2020.
- Fidelity Investments. "Why Dividends Matter." Accessed Aug. 1, 2020.
- NASDAQ, Inc. "Do Not Reduce Order (DNR Order)." Accessed Aug. 1, 2020.
- Johnson & Johnson. "Dividend History." Accessed Aug. 1, 2020.
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