when a company declares a dividend its board of directors establishes a record date when investors must be on record as shareholders to receive the dividend payment once the record date is set the ex dividend date is also determined according to the exchange rules on which the stock is traded 
the ex dividend date is one business day before the record date for example if a company declares a dividend on march 3 with a record date of monday april 11 the ex dividend date would be friday april 8 because it s one business day before the record date 1 the ex dividend date is before the record date because of how stock trades are settled after a stock trade the transaction isn t settled for one business day known as the t 1 settlement investors with stock on thursday april 7 that is sold on friday april 8 would still be the shareholder of record on monday april 11 because the trade hasn t settled however if the stock sold on wednesday april 6 the trade would be settled on thursday april 7 before the ex dividend date of friday april 8 and the new buyer would be entitled to the dividend stock price and ex dividendon average a stock price will drop slightly less than the dividend amount given that stock prices move daily the fluctuation caused by small dividends may be difficult to detect the effect on stocks from larger dividend payments can be easier to observe if a company issues a dividend in stock instead of cash or the cash dividend is 25 or more of the value of the stock the ex dividend date rules differ with a stock or large cash dividend the ex dividend date is set on the first business day after the dividend is paid 1key dividend related dates