What is the Significance of Record Date and Ex-Dividend Date in Corporate Actions?

There are multiple dates associated with every dividend that a company declares. We will explain the significance of two of these dates to you in this blog. In case you own stock in a company, you should be aware of concepts like the Dividend Record Date, the Ex-Dividend Date, the Start and End Dates for Book Closings, and so on.

All these terms have a very slight difference, and a stock market investor must comprehend these terms from the correct angle.

Thus, this blog will look at the meaning and importance of the Record Date and the Ex-Dividend Date. So, read on to know more about the same!

Record Date

Although booming capital gains may appear to be the fascinating aspect of stock investing, shareholders are entitled to more. First, they get a cut of the company's profits as dividends because they are part owners of the business.

On predetermined dates, these dividends are also distributed. Thus, the date on which the company collates a record of stockholders for which it has announced a dividend is known as the Record Date, which is determined by the company's board of directors.

The shareholders entitled to claim the dividend are determined using this list. A Record Date also establishes who can access stock reports, financial reports, proxy statements, and other financial information about the company and its stock. 

Ex-Dividend Date

Each investor comes to the stock market with a unique set of objectives. For example, one investor may be a salaried individual looking to increase a portion of their savings; another investor may want to invest for the long term and use their investments as a retirement fund, and the remaining investors are professionals who rely on the income from the stock market to support their lifestyles.

Thus, the Ex-Dividend Date defines which shareholders will receive the company's announced dividend on the given date. For example, it would be the day the company's stock goes ex-dividend, which means that the stock does not hold the value attached to the next dividend payment from that day forward.

Record Date vs Ex-Dividend Date : A Synopsis 

Significant dates about stock purchases, reporting, and the dividend payout procedure include the Record Date, also known as the day of record, and the Ex-Dividend Date of a stock. These dates determine which shareholders will be paid dividends.

The ownership of the stock is finally transferred as of the Record Date. As the owner of the record, the new purchaser is now eligible to receive dividends. The Record Date is determined by the board of directors of a company. It designates the deadline by which shareholders must be registered on the company's books to be eligible to receive dividends on their shares.

The day a stock trades without the benefit of the following scheduled dividend payment is known as the Ex-Dividend Date. Instead, the prior owner receives the dividend. Therefore, the day before the trade's Record Date is the Ex-Dividend Date. Stock exchange rules set an Ex-Dividend Date.

How are Record Dates & Ex-Dividend Dates Related to Each Other?

Companies can announce the Record Date, but the Ex-Dividend Date is declared based on the stock exchange rules. Stock traders have a settlement period on exchanges. Hence, the Ex-Dividend Date or Ex-Date usually falls two business days before the Record Date.

Let us take an example. Suppose a company, ABC Pvt. Ltd., declares May 15 as the Record Date. Then the Ex-Dividend Date will be May 14. Thus, to become eligible for the dividend, you must purchase the stocks by May 13.

What is T+2?

India follows a T+2 settlement cycle. If you purchase shares by May 13, the shares will get delivered to your DEMAT account by May 15. If you have the claims by May 15, the Record Date, you will be registered as a shareholder in the company’s books. If you buy shares on May 14, the shares may get credited to your DEMAT account by May 16, which means that on May 15 (the Record Date), the seller of the shares will be an eligible shareholder as on the Record Date.

Conclusion

In conclusion, it is essential to distinguish between the Ex-Dividend Date and the date of records dividends. The Ex-Dividend Date occurs before the Record Date and aids in determining which names are listed under each account as of the Record Date for dividend payments. Additionally, both dates are crucial in deciding dividend distributions.

We hope this blog will better acquaint you with Record Dates and Ex-Dividend Dates.