Book closure is a time period during which a company will not handle adjustments to the register, or requests to transfer shares. Companies will often use the book closure date to identify the cut-off date for determining which investors of record will receive a particular dividend payment.
Breaking Down Book Closure
The stock of publicly-traded companies changes hands daily as investors buy and sell shares. Due to this, 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 send the dividend to all investors holding shares as of that date.
After a company declares a "book closure" companies continue to maintain records of ownership; however, the record date marks the final chance for investors to own shares and receive that specific dividend. A company’s board of directors establishes a record date after they decide to issue a dividend payment.
A stock that pays a dividend often increases in price by the amount of the dividend 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 drops by the amount of the dividend, since buyers after this date are no longer entitled to the dividend.
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 s/he has already to sold it to a buyer. Put more plainly: the person who owns the security on the ex-dividend date will receive payment, regardless of who currently holds the stock. The ex-dividend date is typically set for two business days prior to the record date, due to the T+3 system of settlement that U.S. financial markets use.
Additional important dates with regards to book closure include the declaration date or announcement 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; receiving dividends is an important component of several income-oriented investment strategies. These can be standalone approaches to maintain a steady income without much risk – or an add-on to a larger portfolio strategy.