Ex-Dividend Date vs. Date of Record

Dividend Dates Investors Should Know

Checking a dividend date at home
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Stock dividends are often an important part of a well-balanced portfolio. Steady dividend payouts can provide a hedge against down markets. Dividends are also an attractive source of income, especially in today's low-interest environment.

Buying a dividend-paying stock, mutual fund, or exchange-traded fund (ETF) at the wrong time, however, can have some unintended tax consequences. Before you invest, you'll need to know what the date of record and ex-dividend dates are, and how they impact the price of the stock and your taxes.

What Is the Date of Record?

When companies declare and announce a dividend, they specify which shareholders are eligible to receive payment, based on the date that they officially owned their shares. Here's an example of a dividend announcement by Conagra:

CHICAGO, April 16, 2021 /PRNewswire/ -- Conagra Brands, Inc. (NYSE: CAG) today announced that its board of directors approved a quarterly dividend payment of $0.275 per share of CAG common stock to be paid on June 2, 2021 to stockholders of record as of the close of business on April 30, 2021.

Broker-dealers such as Fidelity and Schwab make calendars that track upcoming dividend payout announcements available to their clients.

What Is the Ex-Dividend Date?

The ex-dividend date is the first day of trading that an investor buying the stock is ineligible to receive the current dividend. While company boards of directors determine the date of record, the ex-dividend date is determined by the exchange on which the stock is traded. The ex-dividend date on both the New York Stock Exchange (NYSE) and Nasdaq Stock Market is one day before the record date. This ex-dividend date exists to recognize the time it takes for shares to actually change hands between the buyer and the seller.

When you buy a stock, your broker-dealer purchases it on your behalf. The broker-dealer is the shareholder of record on the issuing company’s books. But the broker-dealer maintains records that identify you as the stock’s owner, entitling you to any dividends or other benefits. This arrangement is called "holding in street name."

Even though many modern stock trades are executed immediately, the transaction is not complete until the buyer's account has been debited cash, the seller's account has been credited, and the ownership has been officially changed to the buyer. This process is call "settling."

Broker-dealers are required by the Securities and Exchange Commission (SEC) to settle stock trades in two business days, which is known as T+2. If the stock is purchased on or after the ex-dividend date, the transaction will not be completed for two business days and the broker-dealer would identify the purchasing investor as shareholder of record after the date of record. In that case, the seller would be entitled to the dividend.

Ex-Dividend Date vs. the Date of Record

  Ex-Dividend Date Record Date
Purpose Informs potential investors when current dividend is no longer available Identifies eligible stockholders
Who Determines Exchange Board of directors
Public Announcement Stock exchange calendar Press release
Cash Dividend 1 day before record date As announced by board of directors
Stock Dividend 1 day after record date As announced by board of directors
Mutual Funds 1 day after record date As announced by fund

Four Dividend Dates for Investors To Know

If you own or are considering buying shares of stock, mutual funds, or ETFs, you should be familiar with four dates related to dividends. In the scenarios below, you can see how each works.

Dividend Announcement Date

This is the date the board of directors announces the dividend per share, record date, and pay date.

For example, XYZ, a stock of which you own 1,000 shares, announces on April 12 a quarterly dividend of 25 cents a share to be paid on June 1 to shareholders of record as of May 30. The current share price of XYZ is $20. The quarterly dividend represents a 5% annualized rate of return. In this case, the formula is:

quarterly dividend X 4($1) / share price ($20) = .05

Dividend Record Date

This is the date shareholders must be on record as owning a stock to be eligible for a dividend payment. Because you bought XYZ shares on March 1, you are eligible for the June 1 dividend announced in April.

Ex-Dividend Date

XYZ has announced a record date of May 30, so in this case, the ex-dividend date is May 29. The XYZ dividend is a very generous 5%, so you are considering buying shares on May 28 and selling them on May 31 for a tidy profit. Unfortunately, this plan will not work out. The price of the stock will usually drop by the amount of the dividend paid—in this case, 25 cents per share. While you will receive the dividend as a new shareholder, you also will have to pay taxes on it. For most investors, buying stocks for their dividends alone is a losing strategy.

Dividend Payment Date

This is the date shareholders of record will receive dividend payment. In the XYZ example, you would receive a credit to your brokerage account of 25 cents per share, or $250 for 1,000 shares, on June 1.