To determine whether you should get a dividend, you need to look at two important dates. They are the "record date" or "date of record" and the "ex-dividend date" or "ex-date."
When a company declares a dividend, it sets a record date when you must be on the company's books as a shareholder to receive the dividend. Companies also use this date to determine who is sent proxy statements, financial reports, and other information.
Once the company sets the record date, the ex-dividend date is set based on stock exchange rules. The ex-dividend date for stocks is usually set as the record date or one business day before if the record date is not a business day. If you purchase a stock on its ex-dividend date or after, you will not receive the next dividend payment. Instead, the seller gets the dividend. If you purchase before the ex-dividend date, you get the dividend.
Here are two examples to demonstrate how ex-dividend dates may work:
Example 1
Declaration Date: Monday, 7/1/2024
Record Date: Monday, 7/15/2024
Ex-Dividend Date: Monday, 7/15/2024
Payable Date: Tuesday, 7/17/202
On July 1, 2024, Company XYZ declares a dividend payable on July 17, 2024, to its shareholders. XYZ also announces that shareholders of record on the company's books on or before July 15, 2024, are entitled to the dividend. In this example, the record date falls on a Monday. Excluding weekends and holidays, the ex-dividend would be set on the record date of July 15, 2024. This means anyone who bought the stock on Monday July 15, 2024, or after would not get the dividend. At the same time, those who purchase before the ex-dividend date will receive the dividend.
Example 2
Declaration Date: Monday, 7/1/2024
Record Date: Sunday, 7/14/2024
Ex-Dividend Date: Friday, 7/12/2024
Payable Date: Tuesday, 7/17/202
On July 1, 2024, Company XYZ declares a dividend payable on July 17, 2024, to its shareholders. XYZ also announces that shareholders of record on the company's books on or before July 14, 2024, are entitled to the dividend. In this example, the record date falls on a Sunday. Since the record date is a weekend day, the ex-dividend would be set one business day before the record date on Friday July 12, 2024. This means anyone who bought the stock on Friday July 12, 2024, or after would not get the dividend. At the same time, those who purchase before the ex-dividend date will receive the dividend.
Special Dividends
With a significant dividend, the price of a stock may fall by that amount on the ex-dividend date.
If the dividend is 25% or more of the stock value, special rules apply to the determination of the ex-dividend date. In these cases, the ex-dividend date will be deferred until one business day after the dividend is paid. In the above examples, the ex-dividend date for a stock that’s paying a dividend equal to 25% or more of its value, is Wednesday July 18, 2024.
Sometimes a company pays a dividend in the form of stock rather than cash. The stock dividend may be additional shares in the company or in a subsidiary being spun off. The procedures for stock dividends may be different from cash dividends. The ex-dividend date is set the first business day after the stock dividend is paid (and is also after the record date).
If you sell your stock before the ex-dividend date, you also are selling away your right to the stock dividend. Your sale includes an obligation to deliver any shares acquired as a result of the dividend to the buyer of your shares, since the seller will receive an I.O.U. or "due bill" from his or her broker for the additional shares. Thus, it is important to remember that the day you can sell your shares without being obligated to deliver the additional shares is not the first business day after the record date, but usually is the first business day after the stock dividend is paid.
If you have questions about specific dividends, you should consult with your financial advisor
