What Are The Record And Ex-Dividend Dates?

The payment of a specific cash dividend to shareholders involves four dates–the announcement date, the ex-dividend date, the dividend date, and the payable date.

Some of them mean exactly what they sound like.

The announcement date simply refers to the date on which a corporation decides to disclose to the public that a dividend will be coming in the future. It is of nearly no legal significance, and it confers no rights. The only time I have ever seen the announcement date matter is in the context of insider trading. If a company executive traded the stock of his corporation before the announcement of a one-time special dividend, it may be used to prove the case. But for a typical investor, the announcement date is only relevant for conveying information about the dividend to come.

The ex-dividend date is three days before the record date, and this is tied to the SEC’s rule of permitting brokerage houses like Schwab to take three days to settle a trade between the buyer and the seller. If you are the buyer of a stock before the ex-dividend date, you are entitled to receive the dividend. If you sell the stock after it goes ex-dividend, you still get that final dividend payment on the way out.

On the announcement date, the corporation’s press release will say something like: “The ex-dividend date for the dividend payment will be on November 15, 2017.” This gives you advance notice that if you want to collect the announced dividend, you must execute a purchase for the shares by November 15, 2017.

Due to New York Stock Exchange convention, which has been adopted by all the other major stock exchanges, the calculation for determining who gets the dividend payment is performed based on the holdings at the close of business on the ex-dividend date. Sticking with our example, if you sell your stock on the morning of November 15, 2017, you won’t be entitled to the dividend even though you technically owned the stock on the ex-dividend date. To be eligible for the dividend, you must own the stock all the way through trading on November 15, 2017.

The record date refers to when the corporation actually looks at its books and brokerage houses go through their electronic data to see who is the recipient of the cash dividend. But because trades take three days to settle, you have to buy the stock three days before the corporation looks at its books. When I say you must own the stock by the end of the ex-dividend date, the reasoning seems a bit circular–you really need to be the shareholder when the corporation and brokerage houses perform their examinations of shareholders on the record date. But the only way you can belong on that list is by purchasing the stock three days earlier on the ex-dividend date. If you purchase the stock after the ex-dividend date but before the record date, the corporation and the brokerage houses won’t recognize you as a shareholder when they perform their research on the record date.

When a stock pays a dividend, you will see the stock price decline by the amount of the dividend upon completion of the ex-dividend date. If Nike is going to relinquish $0.18 per share from its coffers to give to shareholders, the investors that buy the moment after the close of trading on the ex-dividend date should value the corporation at a rate of $0.18 less. This moment is very familiar because, a millisecond later, the stock resumes trading according to the familiar impulses of investors.

The payable date refers to the date that the corporation puts the checks in the mail and sends the brokerage houses the electronic funds to give to the shareholders that purchased the stocks through them. If you own your stock through Schwab, the payable date refers to when Schwab receives the dividend from the issuing corporation. The payable date does not mean that your account must be credited at this time, although most brokerage houses choose to credit your account sometime before the next day’s trading (midnight eastern time is a common selection, but this is not a legal requirement).

I may have included too much obnoxious minutiae. The important takeaway is this: If you want to receive a dividend that a corporation has declared, you must have executed a buy order by the close of business on the ex-dividend date. Likewise, if you want to collect one last dividend as you sell a stock, you can ensure receipt of a final dividend payment by selling your shares the morning after the ex-dividend date.

Originally posted 2017-01-24 10:20:15.

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