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Ex-Dividend and Ex-Rights Calculation Guide: Calculation Methods & Expert Insights on Pros and Cons
What is Ex-Dividend and Ex-Rights? Calculation Methods Explained? Whether you're a beginner in stock investing or a seasoned investor familiar with how to make money with stocks, understanding how to calculate stock dividends is crucial!
Today, Caven Investment Growth has compiled essential information on ex-dividend and ex-rights calculations.
This includes an explanation of what ex-dividend and ex-rights are, the calculation methods, a comparison of their pros and cons, important dates to remember, and common questions about ex-dividend and ex-rights calculations, so you can grasp all the relevant details in one go.
目錄
What is Ex-Dividend and Ex-Rights?
Ex-dividend and ex-rights, commonly referred to as "ex-dividend," are actions taken by listed companies to distribute their previous year's profits to shareholders in the form of cash dividends or stock dividends.
When profits are distributed as "stock," it is called ex-rights, while distribution in "cash" is known as ex-dividend.
For more essential information on stock investing, refer to the beginner's guide articles.
Further reading: Stock Investment Basics | Beginner's Guide "From Zero to One" | How to Buy Stocks - Expert TipsHow are Ex-Dividend and Ex-Rights Calculated?
Although ex-dividend and ex-rights are crucial performance indicators for company shareholders, for investors, calculating their profits after these actions is most important. Here's how to calculate ex-dividend and ex-rights:
Suppose a listed company issues a stock dividend of 1.2 shares. Shareholders will receive the following:
- Ex-Rights (Stock Dividend) 1.2 NTD
For each share held, investors receive an additional 0.12 shares. If you hold one lot of stock (1,000 shares), you will receive:
1.2×1,000/10=120 shares
These shares will be deposited into the investor's "dividend account."
- Ex-Dividend (Cash Dividend) 1.2 NTD
If the company issues a cash dividend of 1.2 NT dollars per share, shareholders will receive: For each share held, investors receive 1.2 NT dollars in cash. If you hold one lot of stock (1,000 shares), you will receive:
1.2×1,000=1,200 NT dollars
This cash dividend will be deposited directly into the investor's "bank settlement account."
Further reading: How to Calculate Stock Dividends? What is a Cash Dividend? A Must-Read Guide for Beginners
Ex-Dividend Reference Price
Ex-Dividend Reference Price = Stock Price − Cash Dividend
For example, if a listed company issues a cash dividend of 1.2 NT dollars and the stock's closing price the day before the ex-dividend date is 41 NT dollars, the ex-dividend reference price would be: 41−1.2=39.8 NT dollars
Ex-Rights Reference Price
Ex-Rights Reference Price = Stock Price / (1+Stock Dividend Rate)
If a company issues a stock dividend of 0.5 NT dollars and the stock price is 32 NT dollars, the ex-rights reference price would be:
32 / ( 1+ 0.5/10) = 32 / 1.05 = 30.476 NT dollars
※ Stock Dividend Rate = Stock Dividend ÷ Stock Face Value (usually 10 NT dollars)
Combined Ex-Dividend and Ex-Rights Reference Price
Ex-Dividend and Ex-Rights Reference Price = Stock Price - Cash Dividend / ( 1+Stock Dividend Rate)If you encounter a company that issues both stock dividends (ex-rights) and cash dividends (ex-dividend), you should calculate "ex-rights first and then ex-dividend."
Suppose a company issues a cash dividend of 1.2 NT dollars and a stock dividend of 0.5 NT dollars, with the stock price being 34 NT dollars the day before the ex-dividend and ex-rights date.
You can calculate the ex-dividend and ex-rights reference price using the following formula:
( 34 - 1.2 ) / ( 1+0.5/10) = 31.238 NT dollarsPros and Cons of Ex-Dividend and Ex-Rights
After understanding the calculation methods for ex-dividend and ex-rights, you might wonder whether these actions are beneficial or detrimental to investors.
Below is a table summarizing the pros and cons of ex-dividend and ex-rights to help you quickly grasp their advantages and disadvantages.
Further Reading: How to Make Money with Stocks? 3 Must-See Tips for Profiting from Stocks!Pros and Cons of Ex-Dividend and Ex-Rights at a Glance
|
Advantage / Disadvantage |
Explanation |
|
⭕ Cash Dividend Income |
After the stock price adjusts, the cash dividends received are additional income for the investor, meaning the overall assets have not decreased. |
|
⭕ Stock Dividend Opportunity |
If the company issues stock dividends, investors can acquire more shares at a more favorable price, increasing their equity. If the company's value increases in the future, the profits earned can be higher than purely receiving cash dividends. |
|
❌ Inability to Recover Stock Price |
After ex-dividend and ex-rights, the stock usually takes some time to recover its price. If the market performs poorly during this period, it may lead to a continuous decline in the stock price, failing to recover, ultimately reducing the investor's overall assets. |
Ex-Dividend and Ex-Rights Key Dates Cheat Sheet
After understanding the pros and cons of ex-dividend and ex-rights, it's essential to know the key dates involved in these processes for stocks and ETFs.
Knowing these dates ensures that you do not miss out on participating in ex-dividend and ex-rights actions. Here is a summary of the important dates to keep track of:
Ex-Dividend and Ex-Rights Key Dates Overview
| Trading Time | Example Date | Trading Activity | Participation Eligibility |
| Day Before Ex-Dividend / Ex-Rights | 112/04/20 | Buy Sell |
⭕ Can Participate ❌ Can't Participate |
| Ex-Dividend / Ex-Rights Date | 112/04/21 | Buy Sell |
Can't Participate this year ⭕ Can Participate |
| Last Settlement Date | 112/04/24 | Buy | ❌ Can't Participate |
| Ex-Dividend / Ex-Rights Record Date | 112/04/29 | - | - |
| Expected Dividend Distribution Date | 112/05/20 | - | - |
What is the Ex-Dividend/Ex-Rights Date?
The ex-dividend/ex-rights date is the first day a stock trades without the value of its next dividend or the right to purchase additional shares at a discount. To be eligible for the dividend or rights issue, investors must own the stock before this date.Using the example dates:
- To participate in this year’s ex-dividend/ex-rights, investors must buy the stock by April 20 at the latest.
What is the Record Date?
The record date, also known as the ex-dividend/ex-rights record date, is the final day during the "no-transfers" period. On this day, the company compiles a list of shareholders who are eligible to receive dividends or rights. The final investor list is used to distribute dividends on the payment date.
What is the Payment Date?
The payment date is the actual day when the dividends are distributed. For cash dividends, the payment will typically be deposited into the investor's bank account on this day.
For stock dividends, the distribution usually happens 1-2 months after the ex-dividend/ex-rights date. Investors can check their bank settlement account to confirm receipt of cash dividends.
What is the Last Settlement Date?
The last settlement date is the day before the record date. To be eligible for dividends or rights, investors must complete their purchase transactions at least two trading days before this date.
How to Check Ex-Dividend/Ex-Rights Dates
To find specific ex-dividend/ex-rights dates for a stock, search for the stock’s information online. Confirm the record date and use the provided timeline to determine the last day to purchase shares to participate in the ex-dividend/ex-rights.
What is "Filling the Gap" (填息)?
"Filling the gap" refers to the process where a stock's price returns to its pre-dividend level after undergoing ex-dividend or ex-rights adjustments. When a stock goes ex-dividend or ex-rights, its price typically drops to reflect the value of the dividend or rights distributed. When the stock price increases and returns to the level it was at before the dividend or rights distribution, this recovery process is known as "filling the gap."
Common Questions about Ex-Dividend and Ex-Rights
Q1. Should I Participate in Ex-Dividend/Ex-Rights?
Wondering whether to participate in this year's ex-dividend or ex-rights? It is recommended to consider your personal tax obligations and the company's ability to fill the gap (recover the stock price) before making a decision.
Q2. How to Avoid Losses After Ex-Dividend/Ex-Rights?
After ex-dividend or ex-rights, the company's stock price usually drops significantly. Not all companies can recover the stock price before the next ex-dividend/ex-rights date, a situation known as "貼息" (sticking to the dividend). To avoid this, it is advisable to evaluate the company's ability to fill the gap before deciding to participate in ex-dividend or ex-rights.
Q3. Why Does the Stock Price Drop After Ex-Dividend/Ex-Rights?
Ex-dividend and ex-rights involve the distribution of company profits to shareholders in the form of cash or stock. Therefore, it is normal for the stock price to decrease after these actions. The decrease in stock price reflects the value of the dividends distributed. For investors, their overall assets remain unchanged as the value has been transferred from the stock price to the dividends received.
Conclusion
Understanding ex-dividend and ex-rights information can help you make informed decisions when selecting stocks. In addition to observing stock prices, consider the company's profitability, ability to fill the gap, and growth potential. Companies with growth potential (e.g., issuing stock dividends) allow investors to participate in their growth and gain more investment value.
If you want to learn more about stock investing, feel free to contact us to schedule a consultation. We can help you establish strategic directions in the stock market.