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With all of the many dates surrounding dividend payments, it can get a little
confusing. Here’s the full rundown.When a company declares a dividend on their stock, they are agreeing to pay a set amount of money to each shareholder. They set a specific date to use to determine who their shareholders are. That eliminates the confusion of who is entitled to the dividend for shares that are bought and sold between the announcement and the payout. So you might expect three dates to be given: the announcement date, the payout date, and the date used for determining shareholders. Since stock transactions take three business days to settle, a fourth date is also given. Here’s what each of the dates mean:
Declaration Date - This is the date the dividend is declared, usually announced in a press release.
Ex-Dividend Date - The date on which purchasing the security no longer includes it’s dividend. Buying on or after this date will cause the transaction to settle after shareholders are determined, so you’ll miss out on the announced dividend.
Record Date - The date shareholders are determined. Purchases must be settled by this date to be eligible for dividend payouts.
Payable Date - The date the dividend is actually paid.
Since settlement takes three business days, the ex-dividend date is typically two business days before the record date. If you buy before the ex-dividend date, your purchase will settle in time for the record date. If you buy on or after the ex-dividend date, it will not settle in time to receive the dividend.
Consider this blurb from a hypothetical press release:
“April 15 - ABC Corp today announced that a dividend distribution will be paid on May 15, 2009, to shareholders of record on May 5, 2009. The ex-dividend date is May 1, 2009. ”
The Declaration Date is April 15th. The Ex-Dividend Date is May 1st. The Record Date is May 5th. The Payable Date is May 15th.
To receive the announced dividend, you would have to buy the stock before the ex-dividend date of May 1st. If you bought on April 30th, the trade would settle 3 business days later on May 5th (May 2-3 are not business days), in time for you to be the unit holder of record on the record date. If you bought on the ex-dividend date, May 1st, the trade wouldn’t settle until May 6th, so you wouldn’t be the unit holder of record in time to receive that dividend. There are other restrictions to dividend eligibility, such as owning the stock for at least one day, but in this discussion I’m simply trying to explain how the dates work.
One final note from the date discussion is that you can sell a stock on or after it’s ex-dividend date and you’ll still receive the dividend since the sale wouldn’t settle until after the record date.
As you have seen from this discussion, the ex-dividend date is the most important date for most investors. Buying before that date and selling on or after it, should allow you to receive the announced dividend.
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