Record Date vs. Ex-Dividend Date: An Overview
The record date, or day of record, and the ex-dividend date of a stock are both important dates relating to stock purchases, reporting, and the dividend payout process. These dates determine which investors will receive dividends. The other two dates in the process are the declaration date (the day the dividend is announced) and the payable date (the date dividends are distributed).
Companies use dividends to distribute profits to shareholders and may pay out dividends in several different ways, including cash dividends, stock dividends, or property dividends. Cash dividends are the most common type of disbursem*nt and are typically sent to stockholders via check or direct deposit. Stock dividends are paid out in the form of company shares.
Key Takeaways
- An ex-dividend date is the day on which a stock trades without the benefit of the next scheduled dividend payment. Instead, the dividend is paid to the previous owner.
- The ex-dividend date is the day before the trade's record date.
- The record date finalizes the transfer of the stock's ownership. The new buyer is now the owner of record and is entitled to any dividends.
- The record date is set by the board of directors of a company and refers to the date by which investors must be on the company's books in order to receive a stock's dividend.
- An ex-dividend date is set by stock exchange rules.
- A stock's price usually drops by the amount of the declared dividend on the ex-dividend date.
Record Date
The record date, which is set by a company's board of directors,is the dateon which the company compiles a list of shareholders of the stock for which it has declared a dividend. This list is used to determine the shareholders entitled to receive the dividend.
In addition, a record date is used to determine who should receive stock reports, financial reports, proxy statements, and other financial information relating to the company and its stock. The record date, along with the ex-dividend date, is important for investors to know to ensure they're eligible to receive the dividends they seek.
Ex-Dividend Date
Taken from the Latin, ex-dividend means without dividend. The ex-dividend date (ex-date) represents the cut-off date for share ownership relating to a current dividend payment process. It's set by stock exchanges and is based on the U.S. Securities and Exchange Commission's (SEC) T+2 rule for the two-day settlement of trades.
The ex-date is usually one business day before the record date. Investors who purchase shares any day before the ex-dividend date will be documented as owners of shares on the record date. That means they'll be entitled to receive the dividend payment. Investors who purchase shares on or after the ex-dividend date won't be recognized as shareowners on the record date. Instead, the seller will still be the owner of the record and will receive the dividend payment.
There are instances when the ex-dividend date actually appears later in the dividend payment process. This can happen when a declared dividend equals 25% or more of the value of the stock. It can also happen if the dividend is paid as stock (not cash). In such circ*mstances, the ex-dividend date is set at one business day after the payable date.
The SEC T+2 rule for the timing of the settlement of trades calls for stock transactions to settle (or be completed) no more than two days after a transaction takes place. That's why purchases made the day before the ex-date, which then settle on the record date, make the buyer the owner of the record for purposes of dividend payment.
Record Date vs. Ex-Dividend Date Example
Here's how the record date and ex-dividend date would work in the overall dividend payout process.
| Declaration Date | Ex-Dividend Date | Record Date | Payable Date |
|---|---|---|---|
| February 4 | February 17 | February 18 | March 14 |
Let's say that on Friday, Feb. 4, XYZ Company declares a dividend for its shareholders. The company's board then announces a record date of Friday, Feb. 18. Shareholders of record on that date will be eligible to receive the dividend.
Typically, the ex-dividend date would fall one business day before the record date, or, on Thursday, Feb. 17. An investor who purchases shares on or before Wednesday, Feb. 16 will be a shareholder of record on Feb. 18 and will receive the dividend to be paid on March 14. An investor who purchases shares on or after Feb. 17 will not be entitled to the dividend.
The Advisor Insight
Brandon Opre, CFP®
TrustTree Financial, Fort Lauderdale, FL
The legal definitions are pretty straightforward: the ex-dividend date is one day prior to the record date. So if you want the dividend, you need to be an owner the day before the ex-dividend date.
Many people use the term "trading ex," which means the time has already passed to get the dividend. If a stock is "trading ex," that means you can buy it but will not get the dividend for that current period. When a stock is trading ex, sometimes it is valued lower (hypothetically by the amount of the dividend) on the ex-dividend date.
Can I Sell My Shares on the Record Date and Still Get the Dividend?
As long as you're on the company's books as a shareholder on the record date, you can sell your shares that day and receive your dividend. To be recognized as a shareholder on the record date, you must have bought your shares at some point before the ex-dividend date (which is one business day before the record date).
How Many Days Before the Record Date Is the Ex-Dividend Date?
The ex-dividend date is normally one business day before the record date. For example, if the record date is a Monday, then the ex-dividend date would be the previous Friday. It would not fall on Saturday or Sunday.
Which Is More Important, the Record Date or the Ex-Dividend Date?
In general, both are important because they are two of the four dates in the dividend payout process that every investor should be aware of. However, the ex-dividend date can be considered more important. That's because investors must buy shares before that date to be considered owners of record for the current dividend distribution. The names of shareowners are simply compiled on the record date. So, if you seek dividends, it's crucial to know the ex-dividend date in order to plan the timing of your transaction.
Who Sets the Ex-Dividend Date?
The ex-dividend date is set based on rules of the stock exchange on which a stock trades. Some trading platforms and news services add an XD modifier after the ticker symbol to show traders the stock is trading ex-dividend.
Article Sources
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U.S. Securities and Exchange Commission. "Ex-Dividend Dates: When Are You Entitled to Stock and Cash Dividends."
U.S. Securities and Exchange Commission. “Bylaws of Mentor Graphics Corporation: Article I Shareholders.”
U.S. Securities and Exchange Commission. "SEC Adopts T+2 Settlement Cycle for Securities Transactions."
Royal Bank of Canada. “Dividends, Dates & Terminology: Things to Know.”
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