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Dividend dates and the ex-date

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Declared, ex and record, payable. For an ordinary dividend under T+1 the ex-date is the record date — buy before it or miss the dividend.

The ruleFor an ordinary cash dividend below 25% of the share value, with a business-day record date, the ex-dividend date equals the record date under T+1, so buy before the record date to receive it. A distribution of 25% or more goes ex one business day after it is paid.

Four dates, and only one of them decides

The declaration date is when the board votes to pay a dividend and announces the amount, the record date and the payable date. Until that vote there is no dividend at all, which is what separates common stock from a bond. The declaration creates an obligation for the company and a date on which the list of recipients will be taken.

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The record date is the day the company looks at its books and writes down who owns the shares. Being on that list is the only way to receive the payment, and getting on it requires the trade to have settled. That is the link between the settlement cycle and the dividend, and it is why the answer changed when the cycle shortened.

The ex-dividend date is the first day the stock trades without the dividend attached. Take an ordinary cash dividend below 25% of the share value, with a record date that is a business day. Under a one-day settlement cycle a purchase on the record date settles the next business day, too late to be on the list, so the ex-dividend date falls on the same day as the record date. Buy on the ex-date and the seller keeps the dividend; buy the business day before and you receive it. If the record date is not a business day, the ex-date is the business day before it.

The payable date is simply when the money is sent to the people on the record list. For an ordinary dividend it has no effect on entitlement, and an investor who sells between the record date and the payable date still receives the dividend, because the list was already taken. A distribution of 25% or more of the share value is the exception: its ex-date is put off until one business day after the payable date, so a buyer before that ex-date receives the distribution and the seller does not. Always check the announced ex-date. The price of the stock typically drops by roughly the dividend amount on the ex-date, since a buyer from that morning is buying a share without it.

Exam terms (6)
Declaration date
The day the board votes the dividend and announces the other dates.
Record date
The day the company takes the list of owners entitled to the payment.
Ex-dividend date
The first day the stock trades without the dividend attached.
Payable date
The day the dividend is actually paid to the record holders.
Owner of record
The person on the issuer’s books when the record date list is taken. For shares held in street name that is an intermediary, and the firm credits the dividend to the beneficial owner.
Ex-dividend price drop
The fall of roughly the dividend amount on the ex-date.

The four dividend dates

  1. Declaration date

    The board votes and announces

  2. Ex-dividend date

    First day the stock trades without it

  3. Record date

    Same day under T+1 for an ordinary dividend; the list is taken

  4. Payable date

    The money is sent to the record holders

Only the middle pair decides who is paid.

Try it: Draw a five-day week and mark the record date on the Wednesday. Then place a buyer who trades on the Tuesday, a buyer who trades on the Wednesday and a seller who sells on the Thursday, and say for each whether they receive the dividend. Two of the three do, and the reason is the same for both.

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Try a question, then read the explanation to review the rule.

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Worked example

A board declares a dividend of $0.60 a share with a record date of Wednesday, and three investors trade around it.

  1. The ex-dividend date is the Wednesday as well, because a purchase that day settles on the Thursday and misses the list.
  2. The first investor buys on the Tuesday. That trade settles on the Wednesday, so she is on the books when the list is taken and receives $0.60 a share.
  3. The second investor buys on the Wednesday itself, on or after the ex-date. His trade settles on the Thursday, he is not on the list, and the seller keeps the dividend.
  4. The third investor already owned the shares and sells them on the Thursday. She was on the record list, so she receives the dividend even though she no longer owns the stock when it is paid.
  5. On the Wednesday morning the stock typically opens about $0.60 lower, because from that moment a buyer is buying a share stripped of the payment.

Same rule, new context

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The closest contrast

Buy before record: entitled.

Buy on the ex-date: not.

This decides every ordinary dividend entitlement question. The test is whether the purchase settles in time to put the buyer on the record list, and under a one-day cycle that means buying no later than the business day before the record date.

Summary

  • The board’s declaration creates the dividend; before that there is nothing to be entitled to.
  • Entitlement depends on being an owner of record when the list is taken, directly or as the beneficial owner behind a street-name holder.
  • For an ordinary dividend under a one-day settlement cycle the ex-dividend date falls on the record date; a distribution of 25% or more goes ex one business day after it is paid.
  • Selling after the record date does not forfeit an ordinary dividend, because the list was already taken.

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