XD is one of many ticker-symbol extensions. The extensions originated when shares traded on actual tape that streamed through brokerage offices and were listed in newspapers. In addition to dividend information, these extensions can show when a seller is offering preferred shares, shares of a bankrupt company, or if the stock is trading over the counter, among other things. For example, let’s say you own shares of Home Depot (HD) and it declares a dividend. The dividend declaration filing will have the ex-dividend date, record date, and payable date. If the ex-dividend date is June 1 and the payable date is June 16, the stock will trade ex-dividend, with an XD or X extension, between June 1 and June 16.
How XD in Investing Works
Ticker-symbol extensions were important when stocks were traded on ticker tape or when most investors got their information from newspapers. Now, most of this information is available on brokerage websites. For instance, TD Ameritrade’s online stock summary page shows the ex-dividend date and dividend pay date. Investors can use that information to determine whether the stock is ex-dividend. The ex-dividend date, record date, and payable date all are announced when a dividend is declared. The company determines who will be paid the dividend based on who is a holder or record on the record date. The ex-dividend date, sometimes called “ex-date,” is one business day prior to the record date. The record date also determines which shareholders will be sent information (such as proxy statements) from the company. Look at this press release from Home Depot for an example of how ex-dividend works. The company declared a $1.90 per share cash dividend on May 19, 2022. That date is known as the declaration date. The release said that the dividend is payable on June 16, 2022, and the record date is June 2, 2022. That means the ex-dividend date is June 1, 2022. The stock is ex-dividend between June 1 and June 16.
Dividend Capture Strategy
Some traders use the ex-dividend date as part of the dividend capture strategy. Using this method, a trader will buy a stock before the ex-dividend date, then immediately sell it to capture only the dividend payment. Other factors may make it so that the stock moves by a different amount—either more or less than the dividend value—but the market is efficient enough that it will adjust the price for the fact that there is no longer a current dividend payable to shareholders. If the strategy did work—for example, with a thinly traded stock where the market isn’t efficient—the trader would be liable to pay their ordinary tax rate on the dividend income. Dividends are taxed at 15% once an investor holds the stock for 61 days, but a dividend-capture trader would hold the stock for far less time than that. The most likely example of dividend capture is a trader buying the stock to be a shareholder of record, selling at a loss for the amount of the dividend, and then receiving the dividend and paying taxes on it, which makes the trade a loss.
What Does It Mean for Individual Investors?
For long-term investors, XD doesn’t mean much. If you’re currently considering a potential investment that pays a high dividend, you may want to check the ex-dividend date to make sure you won’t miss out on the dividend by a few days. Otherwise, the impact of one quarterly, or even monthly, dividend won’t change your returns significantly over the long term. Want to read more content like this? Sign up for The Balance’s newsletter for daily insights, analysis, and financial tips, all delivered straight to your inbox every morning!
