The record date is set by the board of directors of a corporation and refers to the date by which investors must be on the company's books in order to receive dividends for a particular stock. Record dates basically serve as notice to the board of directors of the people to whom they should send stock reports and other financial information relating to the investment.
An ex-dividend date is dictated by stock exchange rules and is usually set to be two business days before the record date. In order for an investor to receive a dividend payment on the listed payment date, he would have to have his stock purchase completed by the ex-dividend date. If the stock sale has not been completed by the ex-dividend date, then the seller on record is the one who receives the dividend for that stock. So, for example, if a record date is set for May 30th, the ex-dividend date would typically be set for the 28th of May. However, if May 30th is a Monday, the ex-dividend date would then be Thursday, May 26th. If the buyer has not completed his purchase of the stock by May 28th, he will not receive a dividend.
Companies may pay out dividends in several different ways, including cash dividends, stock dividends or property dividends. Cash dividends are the most common type of disbursements and are typically sent to stockholders via check or direct deposit. Stock dividends are paid out in the form of company shares. With property dividends, a company offers stockholders certain physical assets, such as the company's products, though these dividends are rarely given out by companies.
The Advisor Insight
As mentioned above, the legal definitions are pretty straightforward: the ex-date is two days prior to the record date. So if you want the dividend, you need to be an owner the day before the ex-date. Many people use the term "trading ex" which means the time has already passed to get the dividend.
So if a stock is "trading ex," that means you can buy it but will not get that current period dividend. And the stock may be trading lower (hypothetically by the amount of the dividend) on the ex-date.
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