Ex-Dividend Date vs. Date of Record: Overview
Are you mystified by the workings of dividends and dividend distributions? Perhaps it’s not the concept of dividends that confuses you, but the actual process. In particular, the ex-dividend date and date of record can be tricky dates to understand.
Here’s how they work: To be eligible to receive a dividend declared for a stock, you must buy the stock, or already own it, before the ex-dividend date (otherwise known as the ex-date). That purchase cutoff time is two days before the date of record.
More specifically, you must own the shares at the close of trading one business day before the ex-date.
Key Takeaways
- You must buy a stock before the ex-dividend date to receive the recently declared dividend.
- If you buy the stock on the ex-date, you will not be entitled to the dividend because on that date, the stock begins trading ex-dividend, or “without dividend.”
- The company identifies all company shareholders for dividend payment purposes on the date of record.
- To be eligible for the dividend, you must buy the stock no later than one day before the ex-date, which would mean two business days before the date of record.
- If you plan to sell your stock but wish to receive the dividend, don’t sell it before the ex-dividend date.
Ex-Dividend Date
On the ex-dividend date, a stock starts trading without the dividend. Some trading platforms, market data, and news services might add an XD modifier to the ticker symbol to show it is trading ex-dividend.
If you buy a stock one day before the ex-dividend date, you will get the most recently declared dividend. If you buy on the ex-dividend date or any day after it, you won’t get that particular dividend.
Conversely, if you want to sell a stock and still get a dividend that has been declared, you need to hang onto it until at least the ex-dividend date.
The ex-dividend date is one business day before the date of record.
Date of Record
The date of record, or record date, is the date by which you must be in the company’s records as a current shareholder. Every shareholder on the books on the record date will receive the dividend. If you’re not in the company’s records, you won’t receive the dividend.
In today’s market, settlement of stocks is a T + 1 process. This means that a transaction is entered into the company’s record books one business day after the trade.
To ensure that you are in a company’s record books as a shareholder, you need to buy the stock before the date of record, and one day before the ex-dividend date.
Important Dates in the Distribution Process
There are four major dates relating to the dividend distribution process:
- Declaration date: The day on which the board of directors announces the dividend.
- Ex-dividend date: The day on which the stock begins trading ex-dividend, or without the dividend. It is on or after this date that the dividend is not owed to a new buyer of the stock.
- Date of record: The day on which the company checks its records to identify shareholders of the company. An investor must be listed on that date to be eligible for a dividend payout.
- Payment date: The day the company issues the dividend to all holders of record. Typically, this may be two weeks to one month after the date of record.
As you can see from the diagram above, if you buy on the ex-dividend date (Tuesday), you will not be eligible for the dividend because you’ve bought on the day when the stock starts trading without the dividend.
If you want to buy the stock and receive the dividend, you need to buy it on Monday or before.
As discussed earlier, if you want to sell the stock but still receive the dividend, you need to sell on or after Tuesday the 6th. Different rules apply if the dividend is 25%, or greater, of the value of the security. In this case, the Financial Industry Regulatory Authority (FINRA) indicates that the ex-date is the first business day following the payable date.
The term “cum dividend” is used to describe a stock that is trading with the dividend.
Why Issue a Dividend?
The decision to distribute a dividend is made by a company’s board of directors. The dividend is a share of the profits that is awarded to the company’s shareholders.
Many investors view a long and steady dividend payment history as an important indicator of a good investment, so companies are reluctant to reduce or stop regular dividend payments.
Dividends can be paid in various ways, but the big two involve cash and stock.
Examples of Dividends
Cash Dividend
Suppose you own 100 shares of Cory’s Brewing Company. Cory has enjoyed record sales this year thanks to the high demand for its unique peach-flavored beer. The company decides to share some of its good fortune with stockholders and declares a dividend of $0.10 per share. You will receive a payment from Cory’s Brewing Company of $10.00 (100 shares x $0.10 per share).
In practice, companies that pay dividends issue them four times a year. A one-time dividend such as the one in this example is called an extra dividend.
Stock Dividend
The stock dividend is the second-most common dividend-paying method. It pays in shares rather than cash. Cory might issue a stock dividend of 5%, meaning you’d receive an additional number of shares that represent 5% of your existing shareholding.
In this case, you would receive five shares for every 100 shares that you own (100 shares x 5%, or .05). For any fractional shares left over, the dividend is paid in cash because fractional portions of stocks normally aren’t traded.
The Rare Property Dividend
Another and rarer type of dividend is the property dividend, which is a tangible asset distributed to stockholders.
For instance, if Cory’s Brewing Company wanted to pay out dividends but didn’t have enough stock or money to spare, the company could look for something physical to distribute. In this case, Cory’s might distribute a couple of six-packs of its famous peach beer to all shareholders.
Special Considerations
Just buy a stock two days before the date of record, grab the dividend, and sell the stock a few days later. It may sound like easy money but that isn’t necessarily so.
Remember, once the declaration date has passed, everybody knows when the dividend is going to be paid. Buyers could push the price of the stock up. On the ex-dividend date, the stock price will drop by roughly the amount of the dividend as traders acknowledge the reduction in the company’s cash reserves. So selling it too soon may not be a profitable move.
What Are the Important Dates for Dividends?
They are the declaration date, the ex-dividend date, the record date, and the payment date. Potential investors and existing shareholders should understand these dates so that they make no mistakes that might result in not receiving their dividend payments.
Should Buy and Hold Investors Be Concerned About Ex-Dividend and Record Dates?
Since they are investing for the long-term, they really don’t need to keep track of them. But it’s a good idea to do so to be sure they receive dividend payments when they’re supposed to.
For Whom Does the Ex-Dividend Date Matter Most?
It’s a good idea for every stock investor interested in dividends to understand the ex-dividend date because of the role in plays in the dividend distribution process. However, it’s probably most important for aggressive investors who seek to capture dividends without long-term ownership and for those who want to receive an upcoming dividend before selling their shares.
The Bottom Line
Ex-dividend and date of record are two terms that relate to the dividend declaration and distribution process. Once a dividend is declared, a stock trades with its dividend until the ex-dividend date. If you buy shares before that date, you’ll be entitled to receive the dividend.
The date of record is the day that a company reviews its books to officially determine its shareholders so that it may arrange for the payment of the dividend to them.
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