Ex-Dividend Date and Record Date Explained

Knowing their ex-dividend dates, declaration dates, record dates and payable dates is important to investors. Such knowledge is an important component of crafting an investing strategy.

As an investor, you must familiarize yourself with these dates. Failure to understand these dates may result in the loss of opportunities to receive dividends or loss of the right to dividends after shares in a stock have been sold.

Declaration Date:  The declaration date is simply the date the company makes an announcement of its intention to distribute dividends to its shareholders.

Payable Date:  The payable date is the date the dividends are slated for distribution - i.e. the date on which dividends are payable.

Record Date:  The record date pertains to the date when the company will determine who among the shareholders are entitled to the declared dividend that is slated for distribution on the published payable date.

To be entitled to a dividend, a shareholder must be listed in the company books by the record date. Entitled shareholders will then be sent notifications, financial reports, proxy statements, etc.

Ex-Dividend Date: The ex-dividend date is set 2 business days before the record date for companies that pay cash dividends or 1 business day after the payable date for companies that pay stock dividends.

The ex-dividend date determines whether or not a new shareholder will be entitled to the next dividend payment. Shareholders who purchase shares in a stock on or after the ex-dividend date will not make it to the company's books in time for the record date. Therefore, they will not be paid a dividend on the next dividend payment.

Using the Ex-Dividend Date When Buying Stock

If you buy shares in a stock on the ex-dividend date or after the ex-dividend date has passed, you will not be entitled to your shares' dividend on the next dividend payment. Your shares' dividend will go, instead, to the person or entity that sold you those shares. If you buy shares in a stock before the ex-dividend date, you will be entitled to the next dividend payment from the company.

Before buying stock in a company that pays cash dividends, check today's newspaper. If the stock you want to buy is marked x in any of these papers, it has already gone ex-dividend.

In case of a company that pays stock dividends, you should also confirm if the stock has gone ex-dividend before you invest in it. You should also find out more information about that company's dividend payment practices. When a company awards stock dividends in lieu of cash dividends, the procedures of dividend distribution may vary.

Using the Ex-Dividend Date When Selling Stock

If you sell your shares in a stock before the ex-dividend date, you are effectively foregoing your right to claim your shares' dividend on the next dividend payment.

On the other hand, share prices usually respond to dividend payments, so it's up to you to weight the pros and cons of selling shares before the ex-dividend date. On the days leading to the ex-dividend date of a stock that pays a significant dividend, share prices in the stock usually rise. They usually normalize, however, on and the days following the ex-dividend date.

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