When a company has actively traded stock, the shareholders are continually changing. This causes an issue in keeping track of who owns what and when. Establishing a set record date allows the company to determine exactly who the shareholders are as of a specific date. The shareholders accounted for on that date can receive company-declared dividends or distributions.
The ex-dividend date is set precisely one day before the dividend record date. This could impact the timing of when someone chooses to purchase stock.
Currently, stock trades in North America settle two days after the transaction date. This is important for dividend attribution. If the stock was purchased the day before a company’s record date (the ex-dividend date), that shareholder would not be recorded on the record date and would not be eligible to receive the dividend.
Company X has declared a dividend of $1, payable on June 1, to shareholders of record as of May 15. This means that the record date is May 15, and the ex-dividend date is May 14, as long as this is a weekday and not a holiday.
If a potential shareholder wants to receive the $1 dividend, they must purchase the Company X stock before the ex-dividend date. If they purchase on May 13, their transaction will settle on May 15, and they will make the cutoff to receive the dividend. If they wait a day and purchase on the ex-dividend date, they will not receive the dividend.
In the circumstance when shares are purchased on the ex-dividend date, the purchaser would not be recorded as a shareholder on the record date. The shareholder recorded would be the seller, and this person receives the dividend.
There are exceptions to this rule in the rare case that a dividend is 25% or more of a stock’s value.
The cadence of dividend payment is unique to each business. Many pay on a monthly, quarterly, or annual basis. Each payment has a record date. Dividends are payable as cash in the form of checks or direct deposits. They can also be in the form of additional stock. Investors may also opt to reinvest automatically. It’s important to note that dividends received in a taxable account are counted as income. Even if reinvested, it’s necessary to report these amounts on a tax statement.
The record date business definition is the date set by a company’s board of directors. It determines when investors must be on the company books for the purpose of receiving stock dividends.
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Disclaimer: The content on this page is for information purposes only and does not constitute legal, tax, or accounting advice. If you have specific questions about any of these topics, seek the counsel of a licensed professional.