When pursuing dividend stocks for your investing strategy, it’s important to understand two dates in particular: the ex-dividend date, also called the ex-date, and the date of record.
The ex-dividend date is the last day in which you can buy a share of stock and receive its upcoming dividend payment. The date of record, on the other hand, is the day that a company’s board of directors checks its records to identify company shareholders. Sounds the same, right? Not exactly. They’re two separate instances, but it’s a good idea for stockholders to be aware of both.
This article will specifically outline the definition of dividends, the differences between the ex-date and the date of record when determining dividend payments, examples and some commonly asked questions about these two important dates.
What Are Dividends?
Dividends are a company’s share of profits and retained earnings that that particular company pays out to its shareholders on a regular basis. Dividend investing is one way that shareholders can take advantage of regular cash dividends or other types of dividend payments from a company. Constantly looking forward to the next dividend payment could be a good investment strategy, particularly if you need constant cash flow for your day-to-day living expenses. You may also want to take advantage of dividends for reinvestment purposes.
Examples of Dividends
Let’s take a look at some dividend examples that you may receive from companies, including cash, stock, property, scrip, liquidating, preferred and bond dividends.
- Cash dividend: A cash dividend refers to money that goes to shareholders from a company — it’s the most common type of dividend in which actual payment of cash is made to the shareholders, usually made electronically. You may receive a cash dividend monthly, quarterly or through a one-time payment. Well-established companies typically offer cash dividends.
- Stock dividend: Stock dividends come from companies that “pay out” additional shares of stock instead of making cash dividend payments.
- Property dividend: Property dividends are alternatives to cash or stock dividends and (you guessed it) are physical assets, which could include shares of a subsidiary of the company. They could also include physical property.
- Scrip dividend: A company may not have sufficient funds to issue dividends and must offer a scrip dividend, which goes to shareholders through a certificate, or an option to redeem dividends later or take shares instead.
- Liquidating dividend: If a portion of a company is liquidating, a corporation may offer liquidating dividends during a partial or full liquidation. This dividend goes to shareholders when business owners are experiencing losses and believe the company no longer has growth potential.
- Preferred dividend: A preferred dividend is a dividend that comes from shareholders who enjoy preferential rights, compared to common stockholders. A company must pay out preferred dividends first.
- Bond dividend: Bond dividends are like scrip dividends, except they have a long maturity period compared to a scrip dividend’s short maturity period.
Some of the most popular dividend-paying stocks include the Dividend Kings and the Dividend Aristocrats. Learn more about how to choose between Dividend Kings vs. Aristocrats in our article comparing the two options.
What is the Difference Between the Ex-Dividend Date and Date of Record?
Let’s get into the details of both ex-dividend date and date of record, but first, let’s go over the four different types of “dates” you’ll encounter as a shareholder, in order. (Note, however, that each date doesn’t show up on the calendar as four days in a row. They may be spread over the course of a few months):
- Date 1: Declaration date, also called the announcement date: The announcement date is the date that a company you’ve invested in announces its dividend plans.
- Day 2: Record date: If you are an investor who is on record as a shareholder on this date, the record date, you will receive a dividend payment from the company.
- Day 3: Ex-dividend date: When the ex-dividend date occurs, you mush have already purchased shares of the company in question. If you have not purchased the stock by then, you will not receive the next dividend payment.
- Day 4: Payment date: On this date, you’ll receive your dividend payment from the company in which you've purchased shares.
All of these dates are important to note as a shareholder, but the ex-dividend date is the most important date if you’re trying to squeeze in by a cutoff date. The ex-dividend date tells the company who is unquestionably “in” or “out.”
Overview of Dividend Stocks Ex Date
The ex-dividend date, also called the ex-date, typically occurs one business day before the record date. As an investor, you must have purchased a stock by this date in order to receive your dividend payment.
If you want to sell your stock but claim your dividend payouts, you must hold onto your shares of stock until the ex-dividend date.
Overview of Date of Record
Note that even though the ex-dividend date occurs before the record date, the company chooses the record date first. The company does not choose the ex-dividend date — the stock exchange’s rules determine the ex-dividend date.
Record Date vs. Ex-Dividend Date Example
Let’s make it abundantly clear with an example. Let’s say a company’s announcement date occurs on May 9. On this date, the dividend is announced by the company. The company will cover the dividend amount, record date and the payment date on the announcement date. In this case, let’s say the company announces the record date as June 18.
Stockholders must be registered in the company’s record and on the company’s books by June 18 in order to receive the dividend. The stock exchange then determines the ex-dividend date. In this case, the ex-dividend date would be June 17. As a shareholder, you’d need to purchase shares by June 17 in order to be eligible to receive dividends.
On the payment date (let’s say it’s August 2 in this case), dividends will go to shareholders who are eligible based on the sample dates we’ve provided, above.
As a shareholder, buying stocks is about more than paying attention to valuation, stock price, the amount of the dividend (also known as dividend yield) or the size of the dividend payments you might receive. You also want to pay keen attention to announcement dates and the dividend calendar prior to investing in a particular company. All of the specific dates involved in determining dividends can tell you exactly when you’ll receive a benefit from the company, whether it’s in the form of cash, stock, property or another type of dividend payout.
To sum it all up, the ex-dividend date is the last day you can buy a share of stock. The date on which the dividends are assigned to shareholders of record is known as the record date. The best date of all is the payment date, or the actual date that payment takes place, and it’s one of the best perks of being a shareholder.
Ready to learn more about dividend stocks? Learn more about top dividend stocks, dividend stocks vs. bonds and dividend stocks vs. index funds.
Let’s take a look at a few frequently asked questions about dividend information, particularly those concerning ex-dates, record dates, dividend capture, pay dates and more.
Can you sell your shares on the record date and still get the dividend?
If you sell your stock before the ex-dividend date, you are not eligible to receive dividends from the company in which you hold stock. The record date will always occur after the ex-dividend date, so there’s no way you will be able to receive the dividend. The ex-dividend date is the first day of trading where the shares trade without the right to the dividend. If you sell your shares after the record date, however, you can still take advantage of dividend payments.
How many days before the record date is the ex-dividend date?
The ex-dividend date usually occurs one business day before the record date. If you buy a stock on the ex-dividend date or after, you will not be able to take advantage of the dividends that are paid out by the company you’ve purchased shares of stock from.
Which is more important, the record date or the ex-dividend date?
You want to pay careful attention to the dividend ex-date — it’s a much more important factor in buying or selling a particular stock, and it affects the dividend benefits you receive from that stock. The record date is simply a named date — it’s the one that the management of the company has a full list of shareholders on hand who would receive the latest announced dividend.
Who sets the ex-dividend date?
The U.S. Securities and Exchange Commission sets the ex-dividend date. It usually occurs one day prior to the record date. Putting a small amount of time between the dividend record date and ex-dividend date gives the company time to ready any paperwork and update electronic records.