What is a Record Date?
Whenever the company declares dividends, it sets particular dates. The record date is the date on which the company determines which shareholders are eligible to receive the company’s dividends. This is also known as the cut-off date. The company shares are actively traded on the stock market, which constantly sees changing ownership from one investor to another. Therefore, this date ascertains which investors are deemed to be shareholders to receive the dividend.
The board of directors of the company decides this date. Also, it decides which shareholders shall receive the stock reports and other financial information related to the company.
Investors whose names appear on the company’s shareholder record book as of this date are entitled to earn dividends or any other income, like bonus shares, stock splits, etc., that the company may want to distribute. Therefore, investors who purchase shares after this date are not eligible to receive dividends.
Record Date in Relation to Ex-dividend Date
When the company distributes dividends, there are four primary dates: announcement date, ex-dividend date, record date, and payment date.
The announcement date is the declaration date on which the company announces and approves the payment of dividends to shareholders. And the date on which it pays the dividend is the payment date. In between these two dates lies the ex-dividend date and the record date.
The company does not formally announce the ex-dividend date, but it is determined by the stock exchange in relation to the record date. Usually, the ex-dividend date is set two business days prior to the record date. This is because of the stock exchange protocol. It takes T+2 days for a shareholder’s name to appear on the company books. This determines the eligible list of shareholders. Therefore, investors who wish to earn company dividends must purchase the stocks before the ex-dividend date.
Company ABC announced on 10th May 2021 to payout a 5% dividend on stocks on 1st June 2021. Also, it mentioned the record date being 22nd May 2021.
|Announcement Date||10th May 2021|
|Ex-Dividend Date||20th May 2021|
|Record Date||22nd May 2021|
|Payment Date||1st June 2021|
Therefore, any investor willing to purchase this stock to earn dividends on 1st June must do so before 20th May 2021. If the investor purchases the stock on or after 21st May 2021, their names will not reflect in the company’s record and will not be considered to payout dividends.
Significance of Record Date
The record date, along with the ex-dividend date, has a significant impact on the company’s stock value in the market. This is because when the company announces to distribute dividends, it prompts more investors to participate in the dividend payout by purchasing its stocks. Therefore, days up to the ex-dividend date, stock value may surge due to an increase in demand. Also, the surge begins from the announcement date till the ex-dividend date. Since the ex-dividend date is related to the dividend record date, they play a significant role in driving the share prices.
On the other hand, after the ex-dividend date, the stock price begins to decline. This is because the dividend was the sole factor in driving the share prices up and ceases to exist after the ex-dividend date. Historical trends say that after the ex-dividend date, the share prices fall almost to the same level from where they started rising.
Many investors take this opportunity to utilize the time frame between the announcement date and the ex-dividend date to sell these stocks at a higher price to realize capital gains. Subsequently, after the share prices fall post the ex-dividend date, they repurchase them at a lower price.
Regardless of this, investors willing to participate in the dividend distribution must keep a note of the record date and purchase them before that to ensure that their names appear on the company’s shareholder book.
Difference Between Ex-dividend Date and Record Date
The following are the differences between ex-dividend date and the record date
|Parameter||Ex-Dividend Date||Record Date|
|Who sets it?||Stock exchange||Board of Directors|
|Purpose||Investors must purchase the company stocks by this date||Investor’s name shall appear in the company’s books|
|Announced||2 days prior to the record date||While declaring dividends|
|Eligibility Criteria for dividends||Stocks to be purchased before this date||Stocks to be purchased before the ex-dividend date|
|Considers||Date of stock purchase||Ownership of shares|
Frequently Asked Questions
The ex-dividend date is the date which is set two business days prior to the record date. To avail dividends, the investor must purchase stocks before the ex-dividend date. If they purchase stock on or after this date, they are not eligible to receive dividends. Hence, this date is a deadline for prospective investors who wish to receive dividends.
As per the stock exchange protocol, it takes T+2 days for the shareholder’s name to reflect in the company’s book record.
Yes, you can sell shares on the record date and still receive dividends. This is because, as of this date, the shares are still in your demat account. It takes two business days for the transaction to take place.
Yes, you can buy stocks on a record date, but you will not be considered an eligible investor to receive dividends from the company. Therefore, you must purchase stocks at least two days prior to this date to receive the dividends.