Ex-Dividend Date vs. Record Date | When to Buy a Stock to Receive a Dividend
Learn the difference between the ex-dividend date vs. the record date and when you must own a stock to receive a dividend.
Key Takeaways
The ex-dividend date is the date on or after which a stock is traded without the right to receive the next dividend payment, as the stock price reflects the dividend amount that has been declared and will be paid to shareholders who owned the stock prior to the ex-dividend date.
The record date is the date on which a company reviews its list of shareholders to determine who will receive the dividend payment.
In general, an investor must own the stock prior to the ex-dividend date in order to receive the next dividend payment, while the record date is the date on which the company determines who is eligible to receive the dividend payment.
The ex-dividend date is typically set two business days before the record date, to allow time for stock trades to settle and for the company to determine the list of eligible shareholders.
What is the Ex-Dividend Date?
The ex-dividend date is the date on which a stock trade will occur without a previously declared dividend. This means that any shareholder of record as of this date will receive the upcoming dividend payment.
An investor must purchase the stock before the ex-dividend date to be eligible for the dividend. If you buy the stock on or after the ex-dividend date, you are not eligible to receive the dividend.
What is the Record Date?
The record date, also known as the "book closing date," is the date set by a company's board of directors to determine which shareholders are eligible to receive a declared dividend or other distribution.
The company uses the record date to identify its shareholders who are entitled to receive the dividend payment. However, to be eligible to receive a dividend, an investor must own the stock before the ex-dividend date, which is typically one or two business days before the record date.
What is the Declaration Date?
The declaration date is the date on which a company's board of directors announces the payment of a dividend or other distribution to its shareholders. On this date, the company publicly declares the amount and payment date of the dividend and sets the record date, which is used to determine which shareholders are eligible to receive the payment.
The declaration date is an important event for investors, as it signals the company's financial stability and provides insight into its future plans for profits and growth. The declaration date also sets the timeline for the ex-dividend and payment dates.
When Must You Own the Stock to Receive a Dividend
To receive a dividend payment, you must own the stock before the ex-dividend date, which is typically one or two business days before the record date.
You can buy a stock one day before the ex-dividend date, sell it on the ex-dividend date, and still receive the dividend.
Can You Sell a Stock on the Ex-Dividend Date and Receive a Dividend?
Yes, you can sell a stock on the ex-dividend date and still receive the dividend payment.
Suppose you are the shareholder of record before the ex-dividend date. In that case, you are entitled to receive the upcoming dividend payment, regardless of whether you still own the stock on the payment date.
How Many Days Before the Record Date is the Ex-Dividend Date?
The number of days between the ex-dividend date and the record date can vary, but it is typically one or two business days. The exact timing of the ex-dividend date and the record date is set by the company's board of directors and may vary from one company to another.
Why Does the Stock Drop on the Ex-Dividend Date?
A company's stock price typically drops by the amount of the declared dividend on the ex-dividend date because the dividend payment will reduce the company's assets and, as a result, its overall value.
The drop in stock price is equivalent to the dividend amount and reflects the company's overall value reduction. While on paper, it will drop, the stock price may continue to fluctuate based on a variety of other factors, such as market conditions, economic indicators, and the company's financial performance.
Ex-Dividend Date vs. Record Date | Bottom Line
The ex-dividend date, record date, and declaration date are all important events in the dividend payment process for investors.
The ex-dividend date determines the eligibility for a dividend payment, the record date is used to identify eligible shareholders, and the declaration date signals the company's financial stability and provides insight into its future plans for profits and growth.
To receive a dividend payment, an investor must own the stock before the ex-dividend date, which is typically one or two business days before the record date.
While a stock's price may drop on the ex-dividend date due to the company's overall value reduction, the price may continue to fluctuate based on market conditions and other factors.
