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

The announcement of any corporate action like dividend, bonus shares, rights issue and others comes along with the announcement of the record date. Record date determines the eligibility of a shareholder to avail the corporate action in question. 

Let’s understand the significance of the record date and ex-dividend date in this blog. 

What Is Record Date and Ex-Dividend Date?

We can describe the record date as the cut-off date that entitles a shareholder to a dividend. In simple terms, it means you will get listed as a shareholder in the company’s records on the record date. Hence, companies carry out an identification procedure to mark you eligible for a dividend on the record date.

The ex-dividend date is usually one business day before the record date. You will not be eligible for the dividend on the ex-dividend date. You need to complete your purchase process by the ex-date to receive your dividend.

What Does It Mean When a Share Becomes Ex-Dividend?

It means you must buy the shares of a particular company before the ex-dividend date. If you fail to buy, you will not be eligible to receive the next dividend. If you buy the share on the ex-date or later, the seller gets the dividend instead of you. Let’s understand how this works.

How Are Ex-Dividend And Record Dates Related To Each Other?

Companies can announce the record date. But the ex-date is declared based on the rules of the stock exchange. 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 need to purchase the stocks by May 13th. 

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 shares by May 15, which is the record date, you will be registered in the company’s books as a shareholder.

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.

What Happens To The Share Price After The Ex-Dividend Date And Record Sate?

The share price drops by the expected dividend amount on the ex-dividend date. The security trading without the dividend value means that the share is in the “ex-dividend (XD)” state.

The record date does not impact the price of stocks. Hence, you need not consider the record date when making a decision. 

Why Are These Dates Important For Retail Investors?

These dates are crucial as dividend dates can influence stock prices. Failing to identify the proper date will affect your eligibility to receive the dividend or any other corporate action. 

Key Takeaways

Only the board of directors of a company can set the record date. But the stock exchange rules dictate the ex-date or ex-dividend date.

The company lists the details of its shareholders on the record date.

Investors must buy the shares before the ex-dividend date to be eligible for the dividend.

FAQ

• What is a dividend? Who can decide on distributing dividends?

A dividend is a share of the profit of a company. Dividends are distributed among a company’s shareholders. The board of directors of a company makes decisions regarding dividend distribution.

• What are the important dates related to stock dividends?

You need to consider four important dates related to stock dividends in India. These dates are Declaration Date, Ex-Dividend Date, Record Date, and Payment Date.

• For how long do I need to hold the share to avail the dividend?

You will have to hold the shares at least until the ex-dividend date as you need to be a shareholder on the record date to be eligible for a dividend or any other corporate action. Record date and ex-dividend dates usually are just one day apart. We follow a T+2 settlement cycle. If you sell your shares after the ex-dividend date, the shares will get debited from your Demat account in the next 2 working days. This means you will still be a shareholder of the company till the record date approaches; after which the shares will be debited from your Demat account.