Dividend Payment Chronology

Dividend chronology describes the timeline for a series of events that take place after a company decides to pay dividends to its shareholders. Included in this chronology are the declaration date, ex-dividend date, record date, and payment date in that time order.

Declaration Date

The declaration date is the day on which a company issues a statement declaring its intent to pay a dividend. On said date, the company also announces the holder-of-record date and the payment date. A holder-of-record is the name of the person who is the registered owner of a security and who has the rights to the dividend.

Ex-Dividend Date

The ex-dividend date, otherwise known as the ex-date, is the first business day on which a share will trade without its dividend. As a result, investors who owned shares before the ex-dividend date will receive a dividend once it is paid. In contrast, investors who acquire shares on or after the ex-dividend date will not have the benefit of receiving the dividend.

Holder-of-Record Date

The holder-of-record date, or just simply the record date, as determined by a company, is the business day on which a shareholder that is listed in the company’s records is deemed to have ownership of the company’s shares for the purpose of deciding who can and who cannot receive a dividend when paid.

The record date is typically one or two business days after the ex-dividend date.

Payment Date

The payment date, or payable date, is the date on which a company mails or transfers dividend payments to its shareholders on record. The payment date does not have to be a business day; it can occur on a weekend or holiday.

Question

If an investor purchases shares on the company’s ex-dividend date, which of the following statements is accurate?

1. The investor will receive the dividend when it is paid by the company.
2. The investor will not receive the dividend when it is paid by the company.
3. The investor will receive a portion of the dividend when paid by the company.

Solution

The correct answer is B.

When an investor purchases shares on the ex-dividend date or later, they are not entitled to receive the upcoming dividend payment. The dividend is typically paid to shareholders of record, meaning those who own the shares on or before the record date. Purchasing shares on the ex-dividend date or afterward means the investor will not be on the company’s records as a shareholder entitled to receive the dividend.