What is a 'Due Bill'

A due bill is a financial instrument used to document and identify a stock seller's obligation to deliver a pending dividend to the stock's buyer. A due bill is also used when the stock's buyer is obligated to deliver a pending dividend to the stock's seller.

Due bills function as promissory notes and ensure that the correct owner receives a stock's dividend when the stock is traded near its ex-dividend date. Due bills can be used in a similar fashion when a company issues rights, warrants or stock splits.

BREAKING DOWN 'Due Bill'

For example, a buyer that purchases a stock ex-dividend, but before the dividend is actually paid, would provide a due bill to the seller stating that the dividend payment belongs to the seller. The timing of the ex-dividend date is set according to the rules of the stock exchange on which the stock is traded. This date is typically set for two business days prior to the record date. If a company issues a dividend in stock rather than cash, the ex-dividend date is set on the first business day after the stock dividend is paid out.

On the other hand, if a buyer purchases a stock before the ex-dividend date, he or she would be entitled to the dividend, but if he or she is not listed as the owner on the record date, the seller would receive the dividend. Since the buyer is the rightful recipient of the dividend, the seller would issue a due bill to the buyer. This due bill entitles the rights of ownership to the buyer, even though he/she has not yet been listed as the shareholder of record.

What Is the Due Bill Period?

Suppose a stock is planning to issue a regular quarterly dividend. A list of stockholders of record who will receive the dividend is prepared on the record date. The ex-date is set (usually two days earlier) for when shares will trade on the open market without the right to the dividend. The period beginning at the record date and usually ending two days later (four days after the earlier ex-date) is when the identities of the holders of record are known and payment is due to them. This is known as the due bill period, during which remittances to investors are due after the stockholders of record are established.

RELATED TERMS
  1. Cum Dividend

    Cum dividend is when a buyer of a security will receive a dividend ...
  2. Unpaid Dividend

    A dividend that is owed to stockholders of record but has yet ...
  3. Record Date

    The record date is the cut-off date, established by a company, ...
  4. Cash Dividend

    Cash dividend is the money paid to stockholders normally as a ...
  5. Liquidating Dividend

    A liquidating dividend is a type of payment that a corporation ...
  6. Dividend

    A dividend is a distribution of a portion of a company's earnings, ...
Related Articles
  1. Investing

    How to use the dividend capture strategy

    Learn how to implement the dividend capture strategy, an aggressive, income-focused stock trading strategy investors can use to increase equity profits.
  2. Trading

    Understanding How Dividends Affect Option Prices

    Learn how the distribution of dividends on stocks impacts the price of call and put options, and understand how the ex-dividend date affects options.
  3. Investing

    Is Dividend Investing a Good Strategy?

    Understanding dividends and how they generate steady income for shareholders will help you become a more informed and successful investor.
  4. Investing

    The 3 Biggest Misconceptions of Dividend Stocks

    To find the best dividend stocks, focus on total return, not yield.
  5. Investing

    AAPL: Apple Dividend Analysis

    Apple's dividend has had healthy growth ever since its 2012 reinstatement, thanks to Apple's continuously rising revenue, earnings and operating cash flow.
  6. Investing

    The Ins And Outs of Seller-Financed Real Estate Deals

    There's more than one way to buy or sell a house. Seller financing presents yet another unique option.
  7. Investing

    How dividends affect stockholder equity

    Find out how dividends affect a company's stockholder equity and how the accounting process changes based on the type of dividend issued.
  8. Investing

    How And Why Do Companies Pay Dividends?

    If a company decides to pay dividends, it will choose one of three approaches: residual, stability or hybrid policies. Which a company chooses can determine how profitable its dividend payments ...
RELATED FAQS
  1. Selling Shares Before the Ex-Dividend Date

    Selling a stock before the ex-dividend date will most certainly affect whether or not you receive a dividend from the company. Read Answer >>
  2. Why not buy just before the dividend, then sell?

    Buying a stock ahead of a dividend and selling right after usually doesn't work because the market often responds to dividend ... Read Answer >>
  3. If a long call is owned on the record date of a stock, is the owner of the option ...

    Learn how holding a long call option does not entitle the holder to a dividend on the underlying stock unless the call is ... Read Answer >>
Trading Center