Record Date vs Ex-Dividend Date – Key Differences

The record date and ex-dividend date are crucial for investors to understand when it comes to receiving dividends. The record date determines which shareholders are eligible for the dividend, while the ex-dividend date marks the last day to buy shares and still receive it. This article explains the differences between these two dates, how they impact investors, and how they are linked to stock price movements.

The record date is the cut-off date decided by the company to check which shareholders are eligible for the dividend. To be eligible, investors must hold the stock by this date, as it determines who will receive the dividend payout. It is typically a few days after the ex-dividend date, which sets the trading cutoff for dividend eligibility.

The ex dividend date is the date on which the stock begins trading without the value of the next dividend payment. If investors purchase the stock on or after this date, they will not receive the upcoming dividend. The ex dividend date is usually set one business day before the record date, accounting for the settlement period of stock trades.

The record date and the ex-dividend date are closely linked through the settlement cycle. Typically, a stock transaction takes T+2 days to settle, meaning that the buyer will officially own the shares on the second business day after the transaction. If you buy shares before the ex-dividend date, you are eligible for the dividend, but if you buy on or after the ex-dividend date, you will not be entitled to the dividend, as the settlement will occur after the record date.

Shareholders who buy before the ex-dividend date are available for the dividend, meanwhile those who purchase on or after the ex-dividend date are not. Additionally, on the ex-dividend date, the stock price typically drops by the dividend amount to reflect that the value of the dividend has already been accounted for. This is a market adjustment, ensuring that new buyers do not receive the dividend.

If a company sets its record date on 15th August, the ex-dividend date will typically be 13th August. In this case, investors who buy the stock on or before 12th August are eligible for the dividend, while those who buy on or after 13th August will not receive it. The stock price on 13th August may drop by the dividend amount, reflecting the dividend payment adjustment.

• The record date determines who is eligible for the dividend, while the ex-dividend date marks the last day to buy shares and still receive the dividend.
  

• The ex dividend date is generally set one business day before the record date.
  

• Stock prices generally drop by the dividend amount on the ex-dividend date.
  

• Settlement cycles (T+1, T+2) affect the timing of eligibility for dividends.
  

This content is for informational purposes only and the same should not be construed as investment advice. Bajaj Finserv Direct Limited shall not be liable or responsible for any investment decision that you may take based on this content.