What Is the Difference Between Ex-Dividend and Record Dates?
Are you perplexed by how dividends and dividend distributions work? It’s unlikely that you’re perplexed by the concept of dividends. The problematic considerations are the ex-dividend date and the date of record. To summarize, in order to be eligible for stock dividends, you must purchase the stock (or already hold it) at least two days prior to the record date. That’s one day before the dividend is due to be paid.
Some investment terminology get thrown around like a Frisbee on a hot summer day, so let’s start with the fundamentals of stock dividends.
Important Points to Remember
- The ex-dividend date is the trading date on or after which a new purchase of a stock is not yet owing a dividend.
- On the date of record, the company identifies all of the company’s shareholders.
- You must purchase the stock at least two business days before the record date to be eligible for the dividend.
In the process of distributing a dividend, there are four key dates to remember:
- The day on which the board of directors declares the dividend is known as the declaration date.
- The ex-date, also known as the ex-dividend date, is the trading date on (and after) which a new stock buyer is not entitled to a dividend. The ex-date is one working day before the record date.
- The date of record is the date on which the firm reviews its records to determine who the company’s shareholders are. To be eligible for a dividend, an investment must be listed on that day.
- The dividend is paid on the day the firm mails the dividend to all record holders. This could be a week or more after the record date. 1 Knowing the Difference Between the Ex-Dividend Date and the Date of Record
What is the Purpose of a Dividend?
The board of directors of a firm decides whether or not to pay a dividend. In essence, it is a portion of the earnings distributed to the company’s shareholders.
Companies are hesitant to lower or cease paying regular dividends since many investors consider a consistent payout history to be a significant indicator of a solid investment.
Dividends can be received in a variety of forms, but the most common are cash and shares.
A cash dividend is an example of a dividend that is paid out in cash.
Assume you hold 100 shares of Cory’s Brewing Company, for example. The huge demand for Cory’s distinctive peach-flavored beer has resulted in record sales this year. The corporation decides to distribute some of its good fortune to stakeholders by declaring a $0.10 per share dividend. Cory’s Brewing Company will send you a payment of $10.00.
Companies that pay dividends often do so four times a year. An extra dividend is a one-time dividend like the one in this example.
A Stock Dividend Example
The stock dividend, the second most prevalent method of receiving a dividend, is paid in stock rather than cash. Cory may decide to pay a dividend of $0.05 per existing share. For every 100 shares you own, you will earn five additional shares. Because equities do not trade fractionally, if any fractional shares are left over, the dividend is paid in cash.
The Exceptional Property Dividend
The property dividend, which is a tangible item delivered to stockholders, is a different and uncommon sort of dividend. If Cory’s Brewing Company wanted to pay out dividends but didn’t have enough stock or cash, it may look for something physical to distribute. In this situation, Cory’s might give all shareholders a couple of six-packs of its famed peach beer.
Date of Expiration of Dividends
The ex-date, also known as the ex-dividend date, is the deadline for a pending stock dividend.
You will receive the dividend if you purchase a stock one day before the ex-dividend date. You will not receive the dividend if you purchase on the ex-dividend date or any subsequent day.
On the other hand, if you wish to sell a stock while still receiving a dividend, you must wait until the ex-dividend date.
The ex-date is one working day before the record date.
The date of record is when the corporation identifies all of its existing investors, and hence everyone who is entitled to a dividend. You won’t collect the payout if your name isn’t on the list.
Stock settlement in today’s market is a T+2 process, which implies that a transaction is recorded in the company’s accounts two business days after it occurs.
You must purchase the stock at least two business days before the date of record, or one day before the ex-dividend date, in order to be included in the record books.
You will not receive the dividend if you buy on the ex-dividend date (Tuesday), only one day before the date of record, because your name will not appear in the company’s record books until Thursday. If you wish to get the dividend, you must purchase the stock on Monday. The term cum dividend is used when a stock is trading with a dividend.
If you want to receive the dividend, you must sell the stock on or after Tuesday, June 6th. If the dividend is equal to or greater than 25% of the security’s value, certain requirements apply. The ex-date in this scenario, according to the Financial Industry Regulatory Authority (FINRA), is the first business day after the payment date. 2
Dividends: Special Considerations
The only other date worth mentioning is the payment due date. The day on which the corporation pays dividends to shareholders of record. This could be a week or more after the record date.
It may appear to be simple money. Simply buy a stock two days before the record date to receive the dividend.
It isn’t that simple. Remember that the dividend payment date has gone, and everyone else knows when the dividend will be paid. As traders recognize the loss in the company’s cash reserves, the stock price will decline by roughly the amount of the dividend on the ex-dividend date.