What Is the Record Date?
The record date, or date of record, is the cut-off date established by a company in order to determine which shareholders are eligible to receive a dividend or distribution. The determination of a record date is required to ascertain who exactly a company's shareholders are as of that date, since shareholders of an actively traded stock are continually changing. The shareholders of record as of the record date will be entitled to receive the dividend or distribution, declared by the company.
- The record date is the cut-off date used to determine which shareholders are entitled to a corporate dividend.
- The record date will usually be the day following the ex-dividend date, which is the trading date on (and after) which the dividend is not owed to a new buyer of the stock.
- To be eligible for the dividend, you must buy the stock at least two business days before the record date.
Understanding Record Date
The record date is important because of its relation to another key date, the ex-dividend date. On and after the ex-dividend date, a buyer of the stock will not receive the dividend as the seller is entitled to it. A company’s record date is a key concept to understand before buying and selling dividend stocks. The exact definition of a record date may vary slightly between countries, such as between the London Stock Exchange (LSE) and the New York Stock Exchange (NYSE).
The ex-dividend date is set exactly one business day before the dividend record date. This is because of the T+2 system of settlement presently used in North America, whereby stock trades settle two business days after the transaction is carried out. Thus, if an investor buys a stock one business day before its record date, his or her trade would only settle the day after the record date. He or she would therefore not be a shareholder of record for receiving the dividend. Note that different rules apply if the dividend is 25% or greater of the value of the security, which is quite rare. In this case, the Financial Industry Regulatory Authority (FINRA) indicates that the ex-date is the first business day following the payable date.
To ensure that you are in the record books, you need to buy the stock at least two business days before the date of record, or one day before the ex-dividend date.
Example of a Record Date
Assume company Alpha has declared a dividend of $1, payable on May 1, to shareholders of record as of April 10. The record date is therefore April 10 and the ex-dividend date is one business day before the record date, or April 9 (if April 9-10 fall mid-week with no holidays.)
If Sam wishes to receive the dividend of $1 per Alpha share, she should buy the stock before its ex-dividend date. If she buys Alpha shares on April 8, her trade will settle on April 10; since she is a shareholder of record as of April 10, she will receive the dividend. But if she waits for a day and buys Alpha shares on April 9, which is the ex-dividend date, her trade will only settle on April 11. She would not receive the dividend in this case as she was not a shareholder of Alpha as of the April 10 record date.