CUM DIVIDEND, EX DIVIDEND. Prices of Stock Exchange securities are called cum dividend when they include the payment of a dividend in the near future to a purchaser of those securities, and provided that the quotations have not been already marked ex dividend. Literally, a price becomes cum dividend from the time it is quoted ex dividend. The 5 per cent. British War Loan is officially quoted ex a half-year dividend payment on Oct. 26. Although the interest to which this marking refers is not payable until the following Dec. I, the stock starts on Oct. 26 to earn the interest in respect of the following six months, and which accumulates, in the market price, until the next April 26, when the price again goes ex dividend. It would, however, lead to endless confusion if a price were termed cum dividend immediately after it goes ex. Practice and experience have shown that the question of dividend payment hardly becomes germane until the time approaches when the payment is drawing near. There may be much speculation, possibly sufficient to influence the price of shares, for months in advance of a dividend declaration. To take the War Loan, once more, as an example, the price will be common ly called cum dividend only for a month or two prior to its being quoted ex dividend.
Assuming that no change caused by ordinary supply and demand were to occur in the price of a stock between the payment of one dividend and that of the next, the logical course of the market would be to add a little more money to the price every week, as the dividend date drew near. Then, upon the price being officially declared ex dividend, the net amount of dividend would be deducted from the quotation, and the process should start all over again. This, it is hardly necessary to say, does not happen, although the natural tendency is for prices to advance as dividend dates approach, particularly as regards secur ities when the payments are of the fixed-interest order. Human nature, when buying stocks and shares, has a marked partiality for those upon which a payment of dividend can be ,expected in the near future. In the same way, human nature has an invincible objection to parting from a dividend-warrant after it has been re ceived, and prefers to await quotation of the stock or shares ex dividend before effecting a sale.
As the amount taken off the price when the latter goes ex dividend is the sum distributed, it makes little actual difference, either to buyer or seller, whether the trans action is effected cum dividend or ex, although human nature again comes into play in encouraging a holder to expect part of the deduction to be immediately recovered. A price, on this argu ment, has a cheaper and therefore a more attractive appearance, offering in consequence a livelier temptation to the prospective purchaser.
Stock Exchange rules govern all cases of ex dividend marking and make provision for every known contingency. They cover, to-day, a very unexpected development which arose on the outbreak of the World War, when a few companies, which had announced dividends before hostilities started, decided not to pay the money when war was de clared, electing to retain the cash for the time being. The Stock Exchange, under its the rules, quoted the shares ex dividends that had not been distributed. Buyers who had dealt while the prices were cum dividend, and who had not been registered in time, through the closing of companies' books, to obtain the dividends direct, found they were technically entitled to deduct from the sellers the dividends that those sellers did not receive by reason of the companies' decision to postpone payment. The Stock Exchange rules were accordingly amended, and are now in part as follows:— (1) Government and corporation securities, inscribed, regis tered, certificates or bonds, shall be quoted ex dividend on the day on which the books close or the balance is struck for the payment of the dividend. (2) Securities deliverable by deed of transfer, except registered debentures and stock, units of stock, and shares dealt in in both bearer and registered form, shall be quoted ex dividend on the contango-day on or preceding the first or only day on which the transfer books are closed for the payment of the dividend, or if information is available too late to enable that date to be used the security shall be made ex dividend on the contango-day following the closing of the books. (3) Securities to bearer, other than those mentioned above, and registered debentures become ex when the dividend is payable, but those with coupons payable only abroad on the contango-day that allows the necessary time for collection. (4) American shares go ex on the day following that on which they are dealt in ex dividend on the New York or other American exchanges, or, if such companies have a London register, when the London books have been closed if they had remained open at this time.
The closing of the books referred to in the rules is a line drawn at an announced date when all proprietors on the register are re garded as the owners of the stock or shares, and as such are en titled to be paid the dividend. The books, or registers, are closed, it may be, on one day and opened again on the next. Buyers who, having made their purchases at the cum dividend price, and who are registered on this latter day, must claim the money from the sellers, who will receive it by reason of their names having ap peared on the books before the registers were closed for payment of the dividend. For the American equivalent see Ex DIVIDEND.