I’m in the market for a couple of bond fonds, preparing to put together a conservative portfolio. I’ll write more on that later. But as it’s close to the end of the month, I’m increasingly confused about buying on or around the “ex-dividend” date.
This is the date when the fund – and this is where it starts to get confusing – gets ready to pay its monthly dividend. This doesn’t mean it pays shareholders yet, it just means the fund will trade lower by whatever dividend amount is due on that day – the ex-date.
The plus is you can buy it for a slight discount, the minus is you don’t get that month’s dividend.
So when do you have to buy the ETF or the stock to get the dividend for that month?
You can go ahead and Google all this but it gets mad stupid confusing. Because there’s actually three dates to keep in mind – the declaration date, the ex-date or ex-dividend date, and the date of record.
What the hell does all that mean?
It doesn’t matter. And you won’t even really know when these dates are coming unless you’re deeply following a particular security.
So if you buy before the ex-date, you’re good, you’ll get the dividend.
But how do you know when the ex-date is coming?
In my experience it’s not easy to find. You can look at previous ex-dates. But that doesn’t guarantee they’re always going to be on the same day of every month.
The important thing is that you need to know if you sell a fund or an ETF on a certain date, you might not get that last dividend. Same goes for when you buy it.
Basically if you buy a fund or a stock anywhere in the middle of a month you’ll be fine. You start buying and sell at the beginning and ends of months, you might be in for some surprises.
How to Watch for the Ex-Date
The easiest way I can tell to buy on the ex-date – which won’t give you the dividend, but will give you the discount, so it’s the same difference – is to watch for an unusual drop in the ETF or stock. If you’re buying an S&P index fund and it’s down but the index is up, guess what, it’s the ex-date.
So either buy when that happens or before. Just know that if you buy the day before the ex-date, it’s going to drop the next day. And you’ll feel like shit. In a taxable account, you’ll also pay taxes on that dividend.
The worst thing you could do is buy the day after the ex-date. Because that means you’re not getting the minor discount or the dividend for that month. And you’ll have to wait until next month or next for the dividend.