What Is Book Closure?
Book closure is a time period during which a company will not handle adjustments to the shareholder register or requests to transfer shares. Companies will often use the book closure date to identify the cut-off date for determining which investors on record will receive a dividend payment for that period.
- Book closure is a time period where companies do not handle adjustments to their register or any requests to transfer shares.
- Book closure is also used as a cut-off date to determine which investors will receive a dividend payment for that dividend period.
- Investors pay close attention to the book closure date as it determines when they should sell their shares or how long they need to hold onto them to receive a dividend.
- Other important dividend dates that work in conjunction with book closure are the disclosure date, record date, ex-dividend date, and the payment date.
Understanding Book Closure
The stock of publicly-traded companies changes hands daily as investors buy and sell shares on stock exchanges. Because shares change hands between investors so quickly on the stock market, it can be difficult to determine who owns the shares at a specific moment.
Due to this complexity, when a company declares it will pay a dividend, it must set a specific date when the company will close its shareholder record book and commit to sending the dividend to all investors holding shares as of that date. Book closures allow companies to bring clarity to the process of stock ownership.
After a company declares a book closure it continues to maintain records of ownership. The record date is the date that companies check to see if an investor is on their books and therefore eligible to receive a dividend. A company’s board of directors establishes a record date after they decide to issue a dividend payment.
The record date and book closure date are the same in their cut-off requirement, though the record date does not necessarily imply a period of closing adjustments or transfers. The record date is often referred to as the book closure date in some foreign countries. When investing internationally, it's important to be aware of these slight changes in terminology and how they can impact one's portfolio.
A stock that pays a dividend often increases in price as the book closure date approaches. Due to the logistics of processing a large number of payments, the dividend may not be paid until a few days later. After the book closure date, the price of the stock usually begins to drop, since buyers after this date are no longer entitled to the dividend. Though the process starts again towards the next book closure date.
The book closure date is important to investors as it helps them decide when to sell their shares, not only in relation to capital appreciation but also as part of an income strategy. If they are interested in receiving the dividend, then they will hold off until selling their shares till later.
Book Closure, Record Date, and Ex-Dividend Date
Following the record date and book closure, the ex-dividend date is another important, related date. On and after the ex-dividend date, a seller is still entitled to the dividend even if they have already sold their shares to a buyer because their name will still appear on the record date.
The ex-dividend date is typically set for two business days prior to the record date, due to the T+3 system of settlement used in U.S. financial markets. To put it more plainly, if you buy a share one day before the ex-dividend date your name will appear on the record date, making you eligible to receive the dividend payment. If you buy a share on the ex-dividend date or after, you will not receive the dividend for that period.
Additional important dates with regards to book closure include the declaration date, when a company's board of directors announces a dividend distribution, along with the payment date, when the company mails dividend checks or credits them to investor accounts.
Investors pay close attention to records of dividend payments as receiving dividends is an important component of several income-oriented investment strategies. These can be standalone approaches to maintaining a steady income without much risk or an add-on to a larger portfolio strategy.