There are four dates related to the payment of a dividend/distribution, and without an understanding of each, the process can be very confusing. The four dates are:
- Declaration Date
This is the date the company declares the dividend.
- Record Date
This is the day a buyer of a stock becomes the registered owner; also called the Owner of Record. The buyer of a stock must be on the company’s books as the Owner of Record to receive a normal dividend. The company itself sets this date. Because of the T+3 settlement rule, stock trades must be settled in three business days, meaning that to be an Owner of Record, a buyer of the stock must buy the stock three business days before the record date.
Contrary to a common misperception, the record date doesnot always determine which investor (the buyer or the seller) gets the dividend. It is true that with normal dividends the record date determines the ex-dividend date but that is not true for dividends of 25% or more of a company’s stock price. Therefore, while it isoften true that the record date determines which investor gets the dividend (indirectly by virtue of determining the ex-dividend date), it isalways true that the ex-dividend date determines which investor (the buyer or the seller) gets the dividend.
- Payment Date
This is when the dividend payment will be made. It is also set by the company.
- Ex-Dividend Date
This is the only date of the four that directly affects investors, as it determines when the right to a dividend is no longer transferred with the sale of a stock. For this reason, it’s also the date that causes all the confusion.
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