Ex-Dividend Date vs. Record Date: Key Differences

Investor checks his dividend payments

Investors who rely on dividend income need to understand four crucial dates to determine when they will receive a distribution. Those four dates are the declaration date, the ex-dividend date, the registration date and the payment date. While the declaration and payment dates are generally understood, the ex-dividend and registration dates are easy to confuse. Here are the ways to differentiate between an ex-dividend date and a record date. Consider working with a Financial Advisor while sharpening your dividend investing strategy and tactics.

What is an ex-dividend date?

The ex-dividend date, also known as the ex-date, usually occurs one business day before the record date. It marks the day when investors should buy a stock if they have a dividend payment. If you don’t buy the stock before the ex-dividend date, the dividend goes to the seller.

While the ex-dividend date is before the record date, the company chooses the record date first. On the other hand, the company does not choose the ex-dividend date. Instead, the rules of the stock market determine its position.

Alternatively, investors can sell the stock they own but still receive a declared dividend. In that case, they must hold the stock until the ex-dividend date.

What is a registration date?

The record date acts like a closing for shareholders of a company. The company uses that day to identify all investors who have shares in the company. If they are not on the company’s books on the record date, they will not receive a dividend. The board of directors chooses which day should be used for this purpose. They can also use the record date to decide which investors receive relevant financial information, such as stock reports.

Ex-Dividend Date vs. Record Date: Key Differences

Woman analyzes her dividend ratio

Woman analyzes her dividend ratio

The ex-dividend date and the record date are both important dates in the dividend payment process. They also work in the same way as cut-offs that both buyers and sellers need to know. However, they mark slightly different points in the timeline. The ex-dividend date marks the limit when investors stop receiving the dividend on their share purchase. The record date, on the other hand, is when a company identifies the shareholders who qualify for: receive the dividend. Both dates determine whether a shareholder earns the dividend, but they come at different points in the timeline.

Different sources determine the two dates. The ex-dividend date comes from a the rules of the stock market, while the company itself chooses the registration date. So the former depends on the latter. In addition, the two dates are announced by the respective entities that have decided them. So the stock market announces the ex-date, while the company’s board of directors announces the record date.

It is important to note that the ex date is considered more important for investors buying or selling stocks. It affects them more directly than the record date. That’s because stock prices shift downward depending on the amount announced to shareholders.

Ex-dividend date vs record date: example

There are four dates for the dividend payment process:

  • the declaration date (when the company announces the dividend payment)

  • the ex-dividend date

  • the registration date, and

  • the payment date (when eligible investors receive the dividend)

Let’s illustrate the difference between the ex-dividend date and the record date with an example calendar. Imagine a company called XYZ Corp. It announces a dividend on July 2, 2021. The group then decides that the record date should be July 17, 2021.

That gives us the following timeline:

  1. Declaration date – July 2, 2021.

  2. Ex-dividend date – July 15, 2021.

  3. Record date – July 17, 2021

  4. Payment date – August 17, 2021.

Planning a stock purchase is crucial because of this time sensitivity. Currently, most stock transactions take two business days to settle after order execution. For example, a stock bought on Tuesday usually settles on Thursday. While this timeline varies for some products, it means you need to think ahead. To qualify for a dividend, you must buy the stock at least two days before the ex-dividend date.

The takeaway

A woman checks her fixed income portfolio

A woman checks her fixed income portfolio

Dividends can be a valuable source of income for you as an investor. Whether you want to learn how to live from them into your senior years or simply use them to increase your current income, they have the potential to help. So it’s important to know what determines your eligibility to earn them. By strategically buying and selling stocks based on the dividend payment process, you can maximize your income. Keep an eye on the market for the most lucrative opportunities and keep your portfolio strategy in mind.

Tips for investing

  • A Financial Advisor is a great resource by your side. They guide you based on the needs of you and your portfolio. Finding the right help is easy with The SmartAsset matching tool. All you need to do is answer a few questions for the program to match you with up to three finance professionals. That leaves you the freedom to choose the most suitable one for you. If you’re ready then start now.

  • If your investments are profitable, you may owe capital gains tax. Find out how much you pay when you sell your shares with our capital gains tax calculator.

  • One way to create a secure portfolio is by: diversify. With a diverse portfolio, the investor allocates his money to multiple investments in different parts of the market. This means you will not be bothered if one investment takes a hit. The success or consistency of the other investments ensures that you do not lose too much.

Photo credit: ©iStock.com/scyther5, ©iStock.com/Kemal Yildirim, ©iStock.com/Prostock-Studio

The mail Ex-Dividend Date vs. Record Date: Key Differences appeared first on SmartAsset Blog.