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?
- The investor will receive the dividend when it is paid by the company.
- The investor will not receive the dividend when it is paid by the company.
- 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.