How it works
Dividend events have four dates: declaration date (board announces), ex-dividend date (price drops by dividend amount; trading without rights begins), record date (broker books determine ownership), and payment date (cash is distributed). Under the current T+1 US settlement, ex-date is typically the same day as record date. Buy before ex-date close, you receive the dividend; buy on or after ex-date open, you do not. The share price typically opens lower by approximately the dividend amount on the ex-date.
Example
A company declares a $0.50 quarterly dividend with record date Friday March 14 and payment date March 28. Under T+1, the ex-date is also March 14. Investors holding at Thursday March 13 close are entitled to the dividend. The stock that closed at $50.00 on March 13 typically opens at about $49.50 on March 14 (cash leaves the company, so the share value drops correspondingly). Short-term dividend capture strategies are based on this opening drop being smaller than the dividend amount; in practice, after costs and tax, that gap is usually unprofitable.
Why it matters
The ex-date is the only date that matters for capturing a dividend. Many retail investors confuse record date with ex-date and miss dividends by buying one trading day too late. Tax treatment also depends on ex-date: in the US, dividends are qualified (lower tax rate) only if the holder has held the stock for at least 60 days in the 121-day window centred on the ex-date. Short-term dividend chasing usually fails this test, so the dividend is taxed at ordinary rates and the strategy loses to the wash.
