Ex-Dividend Vs Record Vs Payment Date
New investors are often perplexed by the share market terminology around when dividends are paid. This review will guide you through the dividend jargon.
The ex-dividend date; the books closing date; and payable date are the important dates to know.
The only two dates stock investors need to know about are the ex-dividend date and the payable date (or payment date as it’s sometimes known).
As a company announces a dividend, as well as the dividend per share, it also announces a books closing date (which, as we’ve noted, can also be called the record date).
This means that all shareholders who are on the company’s share register at that date will receive the dividend.
But in order to be on the share register at that date, investors need to have purchased the shares at least three business days earlier. This is due to T+3 settlement. This is the ASX’s procedure for settling trades. The instant the trade is executed the shareholder becomes the economic owner of the share, and assumes the gains or losses from movements in its price.
But the money is not exchanged and the stock transferred from seller to buyer until three trading days later.
Therefore, to hold the shares on the record date, and therefore receive the dividend, you need to have purchased it three business days prior.
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After the company declares the dividend and books close date, the ASX determines the ex-dividend date.
After a company declares the books closing date, the ASX informs the market of the date investors need to have purchased by in order to be on the register at the books closing date.
That ASX stipulated date is called the ex-dividend date. If you buy a share before the ex-dividend date, the stock is cum-dividend, and you’re entitled to the dividend. If you buy it on or after the ex-dividend date, then you will not receive the current dividend and the stock is considered ex-dividend. And that’s why it’s important for investors to understand this particular date.
In theory, the share should fall in price on the ex-dividend date by the amount of the dividend. Its important not to panic if the share falls by a few percent overnight. You’ll be compensated by your dividend payment in a few weeks time. It is worth checking the payable date as some companies are regular offenders when it come to late payment of dividends.
Of course, all things rarely are exactly equal, so a share will usually fall a little more or a little less than the dividend, depending on all the other factors that affect it on a day to day basis.
The company mails out the dividend cheques on the payable date Alternatively, if you have requested a direct credit, the day the funds will be transferred to you. Share holders who nominate in a dividend reinvestment plan (DRP) will receive shares instead of cash around this date.
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