There are two important dates to keep in mind when discussing dividends: the ex-dividend date and the record date.

Ex-dividend date simply means the day on which the company's stock goes ex-dividend, meaning it will not carry the value of its next dividend on or after the said date.

Record date is the day on which the shares should be in your demat account to be eligible for the dividend.

The ex-dividend date is usually fixed two or one business day prior to the record date as per a company's T+1 or T+2 settlement mechanism. Hence, one must purchase the company's shares before the ex-dividend date to be eligible for the dividend.

What does stock trading ex-dividend mean?

Let's take the example of Vedanta Ltd. The company has set Friday, April 7, as the record date for the purpose of determining the shareholders eligible for interim dividend. Shares traded ex-dividend on Thursday, April 6.

According to the exchange filing of the company, the board declared an interim dividend of ₹20.50 per equity share of face value of Re 1 (2050%).

Vedanta follows T+1, so if you purchased shares on or before Thursday, they would be credited to your account by the record date, which is tomorrow. This makes you eligible for the dividend.

Another important concept to understand in relation to dividends is that the dividend is deducted from the price of the stock on the ex-dividend date. For instance, Vedanta ended yesterday around ₹286.25; however, today, as it was the ex-dividend date, yesterday's closing price would be considered as ₹266 after adjusting the dividend of ₹20 each.

This does not mean the stock is down by ₹20.

This effectively means those who purchased the stock yesterday would get ₹20 each share directly into their account.

The stock closed over 3% higher today on the backdrop of positive market sentiment. However, it is necessary to note that shares do not always trade in the green on ex-dividend date. They could also fall based on other factors.