Definition of Ex Dividend Date and Record Date

Ex-dividend refers to a security that does not have the right to the dividend declared of late or the time period concerning the declaration of the dividend and the payment. A security turns out to be ex-dividend on the ex-dividend date (defined by the NASD). The ex-dividend date alias reinvestment date, is an investment phrase that includes the timing of payment of dividends on stocks of corporations, income trusts, and other financial holdings, both publicly and privately occupied.

 

If anybody purchases shares prior to the ex-dividend date he/she is allowed to obtain the dividend declared lately. If anybody purchases on or after that date, in the ex-dividend period, that dividend is disbursed to the previous owner.

 

Ex-dividend is generally specified in newspapers with an x alongside the stock or mutual fund's name. Usually, the value of a stock decreases on the day the ex-dividend period commences as the buyer does not get the advantage of the dividend payment upto the next dividend date. Once the stock comes nearer to the next dividend date, the price may raise progressively in anticipation of the dividend.

 

Many publicly traded as well as privately owned companies disburse dividends to their stockholders. The problems arise at the time of allocating the dividends as the companies are frequently being traded and the composition of their shareholders transforms each day. To solve this kind of issue, companies assign a date, recognized as the record date. Dividends are disbursed to the shareholders as revealed on the share register at the record date. The process is time consuming for recording a stock purchase on the register. For this reason, stock exchanges put a date identified as the ex-dividend date - usually two business days before the record date - to arrange time for this processing. If for any reason, a share transferred before the ex dividend date, is not recorded on the register in due course, the seller has to reimburse the dividend to the buyer while receiving it. Therefore the primary date will be treated as the ex-dividend date.

 

In the United States, the IRS describes the ex-dividend date as "the initial date subsequent to the announcement of a dividend on which the purchaser of a stock is not allowed to obtain the next dividend payment. The London Stock Exchange explains the term "ex" as "when a company issues a stock or dividend, it is based upon an 'on register' or 'record date'.