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Ex-Dividend Date

A date that specifies who between the seller and the new buyer owns the declared dividends

What is the Ex-Dividend Date?

The ex-dividend date is an investment term that specifies who between the seller and the new buyer owns the declared dividends. When a company announces a dividend, the board of directors set a record date when only shareholders recorded on the company’s books as shareholders are entitled to receive the dividends. The ex-dividend date is determined based on a stock exchange’s rules, and it is usually set one or two days before the record date.

 

Ex-Dividend Date

 

Important Dividend-Related Dates

When the board of directors announces dividend payouts, there are several important dates that come into play:

 

#1 Dividend declaration date

The dividend declaration date is the date when the board of directors convene a meeting and announce that they will pay a dividend to shareholders after the declaration of company revenues for the year. Most often, the company secretary will send a press release to the news channels or publish it on the company’s website to make it easy for shareholders to access the information.

On the dividend declaration date, the directors also set the record date and ex-dividend date. New shareholders who buy shares at this time will get a share of the dividends while the sellers will not get a share of the dividends.

 

#2 Dividend record date

The record date is the date on which the company distributing dividends records the names of all investors holding shares on the shareholders’ roaster. Shareholders who are not captured on the roster before the dividend record date do not participate in the company’s dividend distribution.

 

#3 Ex-dividend date

The U.S. Securities and Exchange Commission sets the ex-dividend date to one day before the record date, so that buy and sell information sent to the transfer agent is captured before the record date. The old owners’ shares are transferred to the new owners to prevent cases of dividend payments going to the wrong person. The time difference between the dividend record date and ex-dividend date allows the necessary time to prepare paperwork and electronic records.

 

#4 Dividend payment date

The dividend payment date is the date when the dividends are paid out by the issuing entity to the shareholders, and the cash reflects in the shareholder’s brokerage or checking account or when the check is sent out to the shareholder via registered mail.

 

Timelines Related to the Ex-Dividend Date

The ex-dividend date is an important date that determines who between the seller and buyer of shares receives the dividend payouts from the issuing company. The following timelines determine who gets the dividends:

  • If a buyer purchases company shares from a shareholder before the ex-dividend date, the buyer is entitled to receive the dividend payments. It is because the buy information is submitted to the transfer agent before the record date, meaning the company will count the buyer as one of the existing shareholders.
  • In the event that the buyer purchases the shares on or after the ex-dividend date, the buy information will not be submitted to the transfer agent before the record date, and they will therefore not be entitled to receive the dividends. Instead, the old owner will receive the payment since he will be recognized as an existing shareholder at the dividend record date.

 

Practical Example of Ex-Dividend Date

On April 10, 2018, Company XYZ announced dividend payouts to its shareholders. The company announced the dividend payment date to be June 10, 2018, for shareholders captured on the company’s books on or before Monday, April 30, 2018. It means the ex-dividend date will be one day before the record date (excluding holidays and weekends), which will be Friday, April 27, 2018. The announcement includes the following important dates:

  • Dividend declaration date: April 10, 2018
  • Dividend record date: April 30, 2018
  • Ex-dividend date: April 27, 2018
  • Dividend payment date: June 10, 2018

 

Ex-Dividend Date in the United States

The U.S. Securities and Exchange Commission used the T+2 rule for the ex-dividend date, meaning that it was set two days before the dividend record date. The period was reviewed in September 2017 to one business day (T+1) before the record date. Business days are defined as the working days with the exception of weekends and major public holidays when U.S. stock exchanges and banks are closed.

If the dividend record day does not fall on a weekend or holiday, counting the ex-dividend date starts from the preceding business day before the actual record date. The exception to this ex-dividend timing formula is when large distributions like stock splits or special dividends are involved.

 

Ex-Dividend Date in the United Kingdom

Shares listed in the London Stock Exchange follows an ex-dividend date that falls one business day before the dividend record date. The record date mostly falls on a Friday while the ex-dividend date falls on a Thursday, with the exception of special dividends, and international dividend issuers with a secondary listing on the London Stock Exchange.

 

Related Readings

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