Record Date vs. Ex-Dividend Date: What’s the Difference?

Reviewed by Andy SmithFact checked by Suzanne KvilhaugReviewed by Andy SmithFact checked by Suzanne Kvilhaug

Record Date vs. Ex-Dividend Date: An Overview

The record date and the ex-dividend date of stock are crucial when buying stocks and knowing about dividend eligibility. The record date is the cut-off date set by a company to determine which shareholders are eligible to receive the declared dividend. On this date, the company reviews its records and identifies its shareholders. The ex-dividend date, typically the same day, is when the stock starts trading without the value of its next dividend payment. These used to be on different dates, but it changed in May 2024, and now they are the same.

You must own the stock before the ex-dividend date to be eligible for the dividend. Companies use dividends to distribute profits to shareholders through cash, stock, or property dividends. Cash dividends are the most common type and are typically sent to stockholders via check or direct deposit. Stock dividends are paid in company shares.

Two other important factors when purchasing and holding stock are the declaration date (the day the dividend is announced) and the payable date (when dividends are distributed).

Key Takeaways

• The ex-dividend date is when a stock trades without the benefit of the next scheduled dividend payment. Instead, the dividend is paid to the previous owner.
• The ex-dividend date is the same day as the trade’s record date.
• The record date finalizes the transfer of the stock’s ownership. The new buyer is now the owner of record and is entitled to any dividends.
• An ex-dividend date is set by stock exchange rules.
• A stock’s price usually drops by the declared dividend amount on the ex-dividend date.

Record Date

The record date, set by a company’s board of directors, is when a company compiles a list of shareholders of the stock for which it has declared a dividend. This list is used to determine the shareholders entitled to receive the dividend.

In addition, the record date determines who should receive stock reports, financial reports, proxy statements, and other financial information about the company.

Note

Stock exchanges worldwide changed their settlement rules in 2024. The “T+1” rule for the timing of trade settlement calls for stock transactions to settle no more than a day after the transaction takes place. This means that the ex-dividend and record dates now fall on the same day.

Ex-Dividend Date

Ex-dividend means “without dividend.” Also called the ex-date, this is the cut-off day for share ownership in the current dividend payment process. It’s set by stock exchanges and is based on the U.S. Securities and Exchange Commission’s (SEC) T+1 rule for the one-day settlement of trades.

The ex-date is the same as the record date. Investors who bought shares before the ex-dividend date will be documented as owners of shares on the record date. That means they’ll be entitled to receive the dividend payment. Investors who buy shares on or after the ex-dividend date won’t be recognized as shareholders on the record date. Instead, the seller will still be the owner of the record and will receive the dividend.

There are instances when the ex-dividend date actually appears later in the dividend payment process. This can happen when a declared dividend equals 25% or more of the value of the stock. It can also occur if the dividend is paid as stock (not cash). In these circumstances, the ex-dividend date is one business day after the payable date.

The Advisor Insight

Brandon Opre, CFP
TrustTree Financial, Fort Lauderdale, FL

If you want the dividend, you need to be an owner the day before the ex-dividend date.

Many people use the term “trading ex,” which means the time has already passed to get the dividend. If a stock is “trading ex,” that means you can buy it but will not get the dividend for that current period. When a stock is trading ex, sometimes it is valued lower (hypothetically by the amount of the dividend) on the ex-dividend date.

Record Date vs. Ex-Dividend Date Example

Here’s how the record date and ex-dividend date would work in the overall dividend process.

Let’s say that on July 3, XYZ Company declares a dividend for its shareholders. The company’s board then announces a record date of Friday, July 17. Shareholders as of that day will be eligible to receive the dividend.

The ex-date falls on the same day, July 17. An investor who purchases shares on or before July 17 will be a shareholder and receive the dividend to be paid on Aug. 14. An investor who does so on or after that day isn’t entitled to the dividend for that period.

Can I Sell My Shares on the Record Date and Still Get the Dividend?

You must own the stock by the close of trading on the record date to be eligible for the dividend. As long as you’re on the company’s books as a shareholder on the record date, you can sell your shares that day and receive your dividend. To be recognized as a shareholder on the record date, you must have bought your shares at some point before the ex-dividend date, which is the same as the record date under the T+1 settlement cycle.

Why Isn’t the Ex-Date Before the Record Date Anymore?

The ex-dividend date used to be before the record date. For example, if the record date is a Monday, then the ex-dividend date might be the previous Friday. (It couldn’t not fall on Saturday or Sunday). The change to making them the same day comes from shortening the period between when a stock is bought and when it’s settled. This was done to cut the credit, market, and liquidity risks associated with unsettled securities trades. The longer the settlement period, the higher the risk of a counterparty defaulting.

Which Is More Important, the Record Date or the Ex-Dividend Date?

In general, both are important because they are one of the three dates in the dividend payout process that every investor should be aware of. However, the ex-dividend date can be considered more important. That’s because investors must buy shares before that date to be considered owners of record for the current dividend distribution. The names of shareholders are simply compiled on the record date. So, if you seek dividends, it’s crucial to know the ex-dividend date to plan the timing of your transaction.

How Does T+1 Settlement Impact Securities Lending and Borrowing?

Over the years, regulators have been compressing the settlement cycle from T+4 or more down to T+1 in 2024. This provides less time for market participants to recall securities out on loan to settle trades, which could lead to a slight increase in settlement failures when related lending activities occur. 

Who Sets the Ex-Dividend Date?

The ex-dividend date is set based on rules of the stock exchange on which a stock trades. Some trading platforms and news services add an XD modifier after the ticker symbol to show traders the stock is trading ex-dividend.

The Bottom Line

Understanding the difference between the record date and the ex-dividend date is crucial for investors who seek to benefit from dividend payments. The ex-dividend date is the cutoff point for new buyers to be eligible for the upcoming dividend, typically set one business day before the record date. On this date, the stock trades without the value of the next dividend payment, and its price usually drops by the dividend amount. The company’s board of directors sets the record date when the company finalizes the list of shareholders eligible to receive the dividend.

The distinction was simplified after the 2024 transition to a T+1 settlement cycle when the ex-date and record date became the same. By keeping track of these critical dates, investors can better plan their transactions to maximize their dividend income and avoid missing out on dividend payments.

Read the original article on Investopedia.