Cum-dividend (CD) comes before Ex-dividend (XD).
What is ‘Cum-Dividend’?
Cum-dividend (CD) is the status of a stock when the company is preparing to pay out dividend in the near future. It serves like a preempt notice to investors. The company would be announcing the amount of dividend to be paid out soon.
If the shareholder sells a cum-dividend stock, he/she is not entitled to the dividend.
What is ‘Ex-Dividend’?
There has to be a cut off date that the company has to set after which they can confirm the list of shareholders to receive dividend. Once the list is finalized, the stock is said to go ex-dividend (XD). Once XD status is declared, the shareholder who sells his/her shares will still be entitled the dividends, while the new owner will not.
Usually XD stocks will be accompanied by a drop in stock price, an amount equivalent to the dividend payout.
This is consistent and fair – by giving out the dividends, the company’s asset is said to be decreased and hence, the stock price should fall.
It is fair to the new shareholders who get the stocks after XD, they did not receive the dividends and they are buying into a company with a lower asset. Thus, the bottom line is dividend payout is not a concern for buying or selling of shares.