The Capital Budgeting Process
Capital budgeting describes the process which companies use to make decisions on capital... Read More
Dividend chronology describes the timeline for a series of events which 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 the said date, the company also announces the holder-of-record date and the payment date.
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 and on the ex-dividend date will receive a dividend once it is paid, while investors who acquire shares on or after the ex-dividend date will not have the benefit of receiving dividend.
Holder-of-Record Date
The holder-of-record date, or 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-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 also 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?
A. The investor will receive the dividend when it is paid by the company
B. The investor will not receive the dividend when it is paid by the company
C. The investor will receive a portion of the dividend when paid by the company
Solution
The correct answer is B.
Since the ex-dividend date is the first date on which shares trade without (i.e. “ex”) a dividend, if a buyer purchases shares on the ex-dividend date, the seller of the shares, and not the buyer will receive the dividend.
Reading 38 LOS 38b:
Describe dividend payment chronology, including the significance of declaration, holder-of-record, ex-dividend, and payment dates
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2021-07-23
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2021-07-17
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