Profit distribution dates that investors need to know
What is the Record Date?
When companies announce a dividend distribution, they determine which shares qualify for holders to receive payments based on the date they officially owned their shares. Here is an example of a dividend distribution announcement from Conagra:
“Chicago, April 16, 2021 / PR Newswire / – Conagra Brands, Inc. (NYSE: CAG) today announced that its Board of Directors has approved a quarterly dividend payment of $0.275 per share of CAG common stock to be paid on June 2, 2021, to shareholders of record at the close of business on April 30, 2021.”
Note: Brokerage firms like Fidelity and Schwab provide calendars that track upcoming dividend announcements for their clients.
What is the Ex-Dividend Date?
The ex-dividend date is the first trading day when an investor who buys the stock is no longer entitled to receive the current dividend. While company boards set the record date, the ex-dividend date is determined by the exchange where the stock is traded. The ex-dividend date on both the New York Stock Exchange (NYSE) and the NASDAQ stock market is one day before the record date. This ex-dividend date exists to acknowledge the time it takes to actually transfer shares between the buyer and the seller.
When buying a share, your broker purchases it on your behalf. The brokerage firm is the registered holder in the books of the issuing company. However, the brokerage firm maintains records identifying you as the owner of the share, making you eligible for any dividends or other benefits. This agreement is referred to as “holding shares in street name.”
Note: Although many modern trades settle instantly, the transaction is not complete until cash is deducted from the buyer’s account, and credit is reflected in the seller’s account, and ownership is officially transferred to the buyer. This process is referred to as “settlement.”
Brokerage firms are required by the Securities and Exchange Commission (SEC) to settle stock trades within two business days, 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 brokerage firm must identify the buying investor as the record holder after the record date. In this case, the seller will be entitled to the dividend.
Ex-Dividend Date vs. Record Date
Ex-Dividend Date Record Date
Purpose Inform potential investors when current dividends are unavailable after determining qualified shareholders
Determined by Exchange Board of Directors
Public announcement Calendar Exchange Press Release
Cash dividends One day before the record date as announced by the Board of Directors
Stock dividends One day after the record date as announced by the Board of Directors
Mutual funds One day after the record date as announced by the fund
4 Dividend Dates Investors Need to Know
If you own or are considering buying stocks, mutual funds, or exchange-traded funds (ETFs), you should be aware of four dates related to dividend distributions. In the scenarios below, you can see how each one works.
Dividend Announcement Date
This is the date when the Board of Directors announces the dividend amount for the share, the record date, and the payment date.
For example, if you own 1,000 shares of XYZ stock and the company announces on April 12 a quarterly dividend of $0.25 per share to be paid on June 1 to shareholders of record on May 30. The current price of XYZ stock is $20. The quarterly dividend represents an annual yield of 5%. In this case, the formula is:
Quarterly Dividend × 4 ($1) / Share Price ($20) = 0.05
Date
Dividend Record Date
This is the date that shareholders must be registered as owners of the stock in order to be eligible for a dividend payment. Since you purchased XYZ shares on March 1, you will be eligible for the dividends announced on June 1.
Dividend Distribution Date
XYZ announced a record date of May 30, so in this case, the dividend distribution date is May 29. XYZ’s dividends are very generous at 5%, so you’re thinking about buying shares on May 28 and selling them on May 31 to make a good profit. Unfortunately, this plan won’t work. The stock price will typically drop by the amount of the dividend paid – in this case, 25 cents per share. While you will receive the dividends as a new shareholder, you may also have to pay taxes on them, depending on whether the shares are held in a regular brokerage account or in a tax-deferred account like an IRA.
Dividend Payment Date
This is the date that registered shareholders receive their dividend payment. In the case of XYZ, you will receive a credit in your brokerage account of 25 cents per share, or $250 for 1,000 shares, on June 1.
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Sources:
Cision PR Newswire. “Conagra Brands Announces Quarterly Dividend Payment.”
U.S. Securities and Exchange Commission. “Updated Investor Bulletin: New “T+2” Settlement Cycle – What Investors Need To Know.”
Source: https://www.thebalancemoney.com/ex-dividend-date-vs-date-of-record-5188357
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