record-date-and-ex-dividend-rate

Record Date Vs Ex-Dividend Date

TABLE OF CONTENT

What Is the Record Date?

The record date, or date of record, is the cut-off date released by a company in order to get which shareholders are eligible to receive a dividend or distribution. The calculation of record date is needed to ascertain who exactly a company's shareholders are as of that date since shareholders of an actively traded stock are continuously changing. The shareholders of record as of the record date will be entitled to get the dividend or distribution, declared by the company.

Example of a Record Date
Assume company Beta has declared a dividend of $1, payable on May 2, to shareholders of record as of April 10. Therefore, the record date is April 10 and the ex-dividend date is one business day before the record date, or April 9 (if April 9-10 fall mid-week with no holiday).
If Rahul wishes to receive the dividend of $1 per Beta share, he should buy the stock before its ex-dividend date. If they buy Beta shares on April 8, their trade will settle on April 10; since they are a shareholder until April 10, they will receive the dividend. But if they wait for a day and buy Beta shares on April 9, which is the ex-dividend date, their trade will only settle on April 11. In this case, they would not get the dividend as they were not a shareholder of Beta as of the April 10 record date.

On the other hand, the time on or after which the buyer of the stock of a company becomes not eligible for the dividend payout is what is usually referred to as the ex-dividend date.
Before we start and explore the concept of the ex-dividend date, here's a brief look at how the current stock market settlement is going. The shares of a company that you purchase on the stock market get credited to your demat account only after T+2 days. This mainly means that if you purchase the shares of a company on a Monday, the shares will get credited to you only on Wednesday. And your name is entered into the shareholders register of that company only after the shares are credited to your demat account, which occurs on Wednesday.
Now that you know how the whole stock market settlement process works, lets take an example to get a better understanding of the concept of the ex-dividend date.

Example of an Ex-Dividend Date
To illustrate this process, assume a company that declares an upcoming dividend on Tuesday, July 30th. If the record date is Thursday, Aug. 8, the ex-dividend date would be Wednesday, Aug. 7, meaning anyone who bought the stock on Aug. 7th or later would not get a dividend.
Conversely, shareholders who purchased their shares on Tuesday, Aug. 6th (or earlier), would be allowed to receive a dividend since its one business day before the ex-dividend date. The payable date can be varied depending on the preferences of the company, but it will always be the last of the four dates.

Dividend investing is a system that involves buying shares that pay a part of the profit the company has earned on a regular basis, called dividends. Dividend investors mainly use a buy-and-hold technique in which they purchase reliable stocks in solid companies and collect the dividends over a long period, purchasing or selling only when they need to add new stocks or dump stocks that are no longer performing.
The ex-dividend date is very much important to dividend investors because of the role it plays in determining who gets the next dividend payment. If you have a stock and want to assure you get the next dividend payment, don't sell out the stock till the ex-dividend date or later. If you purchase a stock and want to assure you get the next dividend payment, purchase the stock before the ex-dividend date.

Basis Dividends Ex-Date Record Date
  • Meaning
  • The stock exchange set the ex-dividend date. To grab the dividend of a particular company, the stock must be purchased by the investor by this date
  • By this date, investors name must be in the books of the company to get the dividend benefit of that company.
  • Announced by
  • Stock Exchange / 2 days prior to the record date.
  • Board of Directors of the Company
  • Importance
  • More important as the stock has to be purchased on or before this date.
  • Not as important as compared to Ex-Dividend.
  • Eligibility criteria
  • Shares purchased post-Ex-Dividend date are not eligible for dividend distribution.
  • Share owned on or before the record date would be eligible for dividend distribution.

Example

Lets understand the difference between Dividends Ex dates and Record dates through an easy example.
Assume, there is a company called Company X declare and announce dividend on April 20th, 2019, and record date should be May 5th, 2019, as decided by the management of that company X.
In this situation, we can understand all the dates as per the following table,

Serial No. Type of Date Date as Per the Example Remarks
  • 1
  • Declaration Date
  • April 20th, 2019
  • Company X announces and Declares Dividend on this date.
  • 2
  • Ex-Dividend Date
  • May 3rd, 2019
  • You should buy this particular stock on or before this date. It must be two days before the record date.
  • 3
  • Record Date
  • May 5th, 2019
  • If you bought this stock on or before the ex-dividend date, you would be eligible to get some of the dividend advantages.
  • 4
  • Payment Date
  • June 5th, 2019
  • An investor listed in the books of the company on the record date will get dividend payments on this date;

Now that you're well familiar with ex-dividend date vs record date, you can now go ahead and make a perfect dividend investing strategy. That said, here's a point that you should take notes. Since the record date set by the company is mainly after the date of declaration of the dividend, the share price will generally witness an increase after the dividend declaration. However, the share price will usually drop down again on the ex-dividend date.

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