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Why you should keep an eye out for the ex-dividend date

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Australian banks accounted for a quarter of the total Q3 2022 dividends.

An income on capital is one of the main draws attracting investors to the stock market, particularly in Australia which has traditionally been a higher payout market compared to its peers.

But with dividend payouts on the decline due to a combination of local and global factors, investors could be better placed by keeping tabs on when their favourite stocks turn ex-dividend, especially in the case of large companies.

What does ex-dividend mean?

"Ex-dividend" day is the record date for paying the interim or final dividend that a company has declared in its results.

Typically, the share price drops by the amount of the dividend paid, reflecting that shareholders joining the register after this date are not entitled to the payment. In such a case, the right to the upcoming dividend payment remains with the seller and will not transfer to the new buyer.

If investors are aware of the ex-dividend day for a particular stock, they can purchase shares in time to get on the company's register to lock in this dividend.

Eligible shareholders will receive this dividend payment on the designated payment date, usually a few weeks after a stock goes ex-dividend.

How ex-dividend affects the WBC stock price

To better understand the concept, take the practical example of bank stocks, which have among the highest dividend yields in the Australian share market.

Shares in Westpac (ASX: WBC) were trading 0.7% lower on Wednesday, a day ahead of the stock turning ex-dividend on 17 November. The Big Four bank last week outlined a final dividend of 64 cents a share despite a small dip in full-year cash profit.

By comparison, rivals Australia and New Zealand Banking Group (ASX: ANZ), Commonwealth Bank (ASX: CBA) and National Australia Bank (ASX: NAB) were trading between 1% and 2% lower.

While a series of analyst downgrades and a tepid outlook for the sector is likely to result in broader weakness in banking shares, Westpac shares will decline further than their peers on Thursday on account of the stock going ex-dividend.

NAB shares similarly sank more than 2.7% on Tuesday on turning ex-dividend, underperforming most of its Big Four peers for the trading session.

Slowing dividend market

Being aware of ex-dividend dates could provide an advantage to investors when overall dividend payouts in Australia are slowing.

A global study by asset manager Janus Henderson Group indicated that Australian dividends slumped 21% from a year ago to US$28.6 billion in the third quarter of 2022.

"The third quarter highlighted the impact of heightened volatility and the commodity cycle across global markets. For Australian dividend investors, the fall in performance from mining companies and a lack of sector diversification in many portfolios meant a less-than-stellar Q3 dividend performance," Janus Henderson's Australia head Matt Gaden said.

Australia has historically driven a large proportion of the Asia Pacific region's performance but has lagged behind its Asian counterparts in 2022 as its mining-heavy stock market has felt the impact of lower metals prices.

At the same time, Australian investors have benefited from the global improvement in trading conditions for banks as interest rates rose.

Globally, bank dividends increased 8.7% on an underlying basis. In Australia, payouts increased 5.8%, but banks still made the largest contribution to dividend growth.

Janus Henderson expects slower global economic growth will likely have an impact on profits and the ability of some companies to grow payouts in 2023. It still expects dividend cover – the relationship between a company's earnings and its dividends – to remain near historic highs. This means dividends could remain relatively stable even if profits come under pressure.

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Disclaimer: This information should not be interpreted as an endorsement of futures, stocks, ETFs, options or any specific provider, service or offering. It should not be relied upon as investment advice or construed as providing recommendations of any kind. Futures, stocks, ETFs and options trading involve substantial risk of loss and therefore are not appropriate for all investors. Past performance is not an indication of future results. Consider your own circumstances and obtain your own advice before making any trades.

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