Cum Dividend, Cum Rights, and Cum Warrant

Definition

Cum Dividend, Cum Rights, and Cum Warrant refer to statuses of a stock wherein the buyer is entitled to receive a declared distribution, which could be dividends, rights, or warrants respectively, upon purchasing the stock. These statuses indicate that the purchase was made before the stock went ex-dividend, ex-rights, or ex-warrant.

Cum Dividend: A stock purchased cum dividend entitles the buyer to the upcoming declared dividend payment.
Cum Rights: This status means the buyer of the stock will be entitled to any rights issuance declared before the purchase.
Cum Warrant: Indicates that the buyer will receive a warrant distribution announced prior to their purchase of the stock.

Examples

Cum Dividend Example: If a company declares a dividend and sets a record date of November 15, and an investor buys the stock on November 10, the stock is considered to be bought cum dividend, which means the investor will receive the dividend.
Cum Rights Example: If a company announces a rights offering to purchase additional shares at a discount and sets a record date of December 1, buying the stock before that date means the purchaser is buying cum rights, thus being eligible to participate in the rights offering.
Cum Warrant Example: When a company declares that it will issue warrants to its existing shareholders and sets a record date, buying the stock before this date (cum warrant) means the stock purchaser will receive the warrants.

Frequently Asked Questions (FAQs)

1. What does ‘cum’ mean in the context of cum dividend or cum rights?

‘Cum’ is a Latin term meaning ‘with’. In this context, cum dividend, cum rights, and cum warrant mean ‘with dividend’, ‘with rights’, and ‘with warrant’, respectively.

2. How do I know if a stock I am buying is cum dividend?

You can check the company’s dividend announcement, including the ex-dividend date. If you buy the stock before the ex-dividend date, it is considered cum dividend.

3. What is the ex-dividend date, and how does it relate to cum dividend?

The ex-dividend date is the cutoff date established by a company for dividend eligibility. If you purchase the stock on or after the ex-dividend date, you will not receive the declared dividend, meaning the stock is ex dividend.

4. Can I benefit from multiple distributions if I buy cum dividend, cum rights, and cum warrant simultaneously?

Yes, if the company has declared all these distributions and you purchase the stock before the respective ex-dates, you are entitled to receive all declared dividends, rights, and warrants.

5. How are cum dividend and ex-dividend prices of a stock typically different?

Cum dividend stock prices include the value of the upcoming dividend, while ex-dividend stock prices typically decrease by the amount of the dividend since new buyers are not entitled to the upcoming payment.

Ex-Dividend Date: The first day a stock trades without the right to receive the next declared dividend. Buyers on this date or later do not receive the dividend.
Record Date: The date on which a company determines the list of shareholders eligible to receive a dividend or other distribution.
Dividend: A portion of a company’s earnings distributed to shareholders. Declared by the board of directors.
Rights Offering: An issue of rights to existing shareholders allowing them to purchase additional shares at a discount, often to raise additional capital.
Warrant: A derivative that gives the holder the right to buy the underlying stock at a specific price before expiration.

Online References

Suggested Books for Further Studies

“The Intelligent Investor” by Benjamin Graham
“Common Stocks and Uncommon Profits” by Philip Fisher
“Security Analysis” by Benjamin Graham and David Dodd
“The Little Book of Common Sense Investing” by John C. Bogle
“Investment Valuation: Tools and Techniques for Determining the Value of Any Asset” by Aswath Damodaran

Fundamentals of Cum Stock Concepts: Finance Basics Quiz

### What does it mean if a stock is purchased cum dividend? - [x] The buyer is entitled to receive the upcoming declared dividend. - [ ] The buyer is exempt from the next dividend payment. - [ ] The buyer has sold options against this stock. - [ ] The buyer holds preference shares. > **Explanation:** Purchasing a stock cum dividend means the buyer is eligible to receive the next declared dividend, as they are purchasing it before the ex-dividend date. ### What is the relationship between cum rights and a rights offering? - [x] Buying a stock cum rights means the buyer can participate in the rights offering. - [ ] Buying a stock cum rights means the buyer cannot participate in the rights offering. - [ ] Rights offerings only affect preferred stock, not cum rights. - [ ] Cum rights refer to the general market price of stocks. > **Explanation:** If a stock is bought cum rights, the buyer is eligible to participate in any rights offering associated with that stock. ### When is a stock no longer considered cum dividend? - [ ] After the dividend announcement. - [x] On or after the ex-dividend date. - [ ] Before the dividend announcement. - [ ] After the ex-dividend date and record date. > **Explanation:** A stock is no longer considered cum dividend on or after the ex-dividend date, as new buyers after this date will not receive the declared dividend. ### What is a warrant in the context of cum warrant? - [x] A derivative giving the right to buy the underlying stock at a specific price. - [ ] A debt security issued by corporations. - [ ] An agreement to lend stock. - [ ] A type of insurance for stocks. > **Explanation:** A warrant is a derivative that allows the holder to buy the underlying stock at a pre-determined price before the expiry date. ### How does the stock price typically change on the ex-dividend date? - [ ] It increases by the dividend amount. - [x] It decreases by the dividend amount. - [ ] It remains unchanged. - [ ] It doubles in value. > **Explanation:** On the ex-dividend date, the stock price typically decreases by approximately the dividend amount since new buyers are not entitled to the declared dividend. ### If you bought a stock after the ex-dividend date, are you eligible for the declared dividend? - [ ] Yes, as long as you hold the stock. - [x] No, the seller retains the right to the dividend. - [ ] Only if the stock price increases. - [ ] Yes, but with a reduced rate. > **Explanation:** Buying stock after the ex-dividend date means you are not eligible for the declared dividend, as the right to receive the dividend remains with the seller. ### What is the typical time frame between the record date and the ex-dividend date? - [x] One business day. - [ ] One week. - [ ] Two weeks. - [ ] One month. > **Explanation:** The ex-dividend date typically occurs one business day before the record date. ### What financial term is similar to cum rights but for existing shareholders' right to purchase bonds before public? - [ ] Cum bonds - [ ] Preferred warrants - [ ] Cum equity - [x] Rights offering > **Explanation:** A rights offering is when existing shareholders are given the right to purchase additional shares, bonds similar to cum rights. ### Which term specifies the first trading day when new buyers will not receive the upcoming dividend? - [ ] Record date - [ ] Declaration date - [ ] Cum dividend date - [x] Ex-dividend date > **Explanation:** The ex-dividend date specifies the first day when new buyers will not receive the upcoming dividend. ### Why might an investor choose to buy a stock cum warrant? - [ ] To avoid getting associated dividends. - [x] To receive a warrant distribution. - [ ] To reduce investment risks. - [ ] Warrants give better voting rights. > **Explanation:** An investor buys a stock cum warrant to be eligible for the upcoming warrant distribution, which can be potentially profitable.

Thank you for exploring our detailed definitions, FAQs, and quizzes related to cum dividend, cum rights, and cum warrant. These concepts are crucial for investors aiming to optimize their stock purchase strategies and maximize their distributions.