Key Insights
- The record date is the cutoff to determine which shareholders receive a corporate dividend.
- The record date will usually be the trading day following the ex-dividend date, which is the trading date the dividend is no longer owed to new buyers of the stock.
- To be eligible for the upcoming dividend, you must buy the stock at least two business days before the record date.
The record date is vital for establishing the list of eligible shareholders due to constant changes in ownership. Shareholders recorded on this date will receive the company’s dividends or distributions.
Decoding the Record Date
The record date is essential because of its relationship with another critical date, the ex-dividend date. From and after the ex-dividend date, buyers of the stock won’t receive the dividend; instead, the sellers, assuming they haven’t engaged in rapid trading actions post-record date, will get it on the payable date.
Knowing the company’s record date before trading dividend-paying stocks is crucial. In the U.S., the ex-dividend date is set precisely one business day prior to the record date due to the “T+2 system,” where stock trades settle two business days after the transaction. Buying a stock one business day before its record date leads to trade settlement the day after the record date, disqualifying the buyer from receiving the dividend.
For dividends equating to 25% or more of the stock value, different rules apply. The Financial Industry Regulatory Authority states the ex-date is the first business day post-payable date. This implies one must buy the stock at least a day before the pay date to receive substantial dividends.
To ensure you’re on the record, purchase the stock at least two business days before the record date or one day before the ex-dividend date.
Example of Understanding Record Dates
Assume company Alpha has declared a dividend of $1, payable on May 1, to shareholders of record as of April 10. Here, April 10 is the record date, and April 9 is the ex-dividend date (if these dates fall in a typical week’s schedule).
To receive the Alpha dividend, investors must buy the stock before the ex-dividend date. If they buy on April 8, the trade settles on April 10; thus, they become shareholders of record and get the dividend. Buying on April 9, however, leads to trade settlement on April 11, which is too late for that dividend.
The Difference Between Record Date and Ex-Dividend Date
Both dates are pivotal for dividend-paying stocks. The record date determines the shareholders entitled to dividends. The ex-dividend date, set a trading day before the record date, is when new buyers no longer qualify for the dividend.
If aiming to be a shareholder of record for dividend receipt, the latest you can purchase is the day before the ex-dividend date or two days before the record date.
Common Queries Answered
Will I Get a Dividend If I Buy on the Record Date?
No, you won’t. Qualifying for the dividend means being a shareholder on the record date, which entails buying shares at least one day before the ex-dividend date or two days before the record date.
What If I Buy Shares on or After the Ex-Dividend Date?
Purchasing stock after its ex-dividend date means missing out on the dividend. The seller, being the shareholder on the record date, receives the dividend.
What If I Sell Shares on the Record Date?
Selling stock on its record date still entitles you to the dividend. Since you’ve sold after the ex-date, you remain the shareholder of record.
In Conclusion
The record date, or date of record, designates which shareholders receive a company’s dividend. This date usually follows the ex-dividend date, marking the first trading day new buyers aren’t entitled to the dividend.
To collect dividends under North America’s T+2 system, ensure your purchase is completed at least two days before the record date.
Related Terms: T+2 system, payable date, shareholders of record.
References
- Securities and Exchange Commission. “Ex-Dividend Dates: When Are You Entitled to Stock and Cash Dividends”.
- Financial Industry Regulatory Authority. “11140. Transactions in Securities ‘Ex-Dividend,‘Ex-Rights, or ‘Ex-Warrants”.’
