The cum dividend status is an essential concept that any investor should be familiar with. In this overview, we will explain what exactly it is, why it matters, and how it differs from ex-dividend conditions.
What Is Cum Dividend?
The word “cum” derives from Latin and translates to “with”, which makes “cum dividend” mean “with dividend”. This term is used to refer to the status of a company’s stock when a dividend has been announced for a future date but has not yet been paid.
What You Need To Know About Cum Dividend
The cum dividend definition is the opposite of that of the term “ex-dividend”. A stock is said to be trading ex-dividend if the buyer is not entitled to the upcoming dividend payment. This means that if you purchase an ex-dividend stock, you will not receive the next dividend payment, even if you buy it right before the record date.
However, if you get a cum dividend stock, it means that you are entitled to the upcoming dividend payment, even if you obtained it right before the ex-dividend date.
It’s essential to understand that when a stock is trading cum dividend, it will have a higher price than it would in an ex-dividend status because the buyer is entitled to receive the next dividend payment.
Suppose a company declares a dividend of $0.50 per share and sets March 20 as the ex-dividend date. If you buy a cum dividend stock on or before March 19, you will be entitled to receive the $0.50 dividend payment. However, purchasing it on March 20 or later will result in no dividend payment.
Another thing to note is that the dividend payment is usually a fixed amount per share, so the yield of a stock will decrease on the ex-dividend date. This is because the stock price will typically experience a drop equal to the dividend amount.
