Purchasing stocks that have dividends is a goal for some investors because they seek a steady stream of income from their investments. They may even go so far as using these payments as their sole source of income during retirement. Therefore, they cross their fingers and hope that the portion of company earnings distributed to them as dividends will increase each year.
Those who purchase these stocks make a point to buy them cum dividend, which means they will be entitled to the dividend payment that has been declared but has not yet been paid. The meaning of cum dividend translates to “with dividend.” The day before the ex-dividend date is the last day a stock trades cum dividend. On or after that day, it will trade without rights to the declared dividend payment.
Some shareholders time their sale of shares to ensure they will receive the declared dividends. They wait until on or after the ex-dividend date to sell the stocks. The purchaser gets the stock at a lower price because it does not contain the dividend and will need to wait until a subsequent dividend is declared to begin receiving dividend payments.
It is helpful for buyers and sellers of dividend stocks to understand these and other terms prior to engaging in a transaction. An unknowing buyer could easily scoop up shares at what is thought to be a steal, only to later find out that these shares do not include the dividend payment. Though money may have been saved on the purchase, it is not always equivalent to the amount of dividend paid.
On the other hand, shares of stock trading cum dividend will result in receipt of the declared dividend payment. Investors interested in this should find stocks with a dividend that has been declared by the company board of directors but has not yet been paid. They should double check that the stock is not yet marked as trading ex-dividend and then make their purchase.
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