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The date of record of dividends is the cut-off date decided by the top management before which the investor’s name should be present in the books of the company to get the dividend payment of particular security.
What is Date of Record?
Date of Record is defined as the date announced by the board of directors of any firm on or before which a stockholder or a shareholder must own the shares of the firm for being eligible to receive a dividend. The shares which are sold after the date of record are known as ex-dividend shares.
- It should be determined stringently since it is essential to ascertain who the company’s shareholders are as of that date because shareholders of actively traded stock are changing continuously. The shareholders who are in the record as of the record date are entitled to receive dividends or distributions which are declared by the company.
- Date of record is also known as Record Date.
What Does the Date of Record Mean?
Suppose a company decides to give its shareholders the dividends for which it has to go through various steps.
- The first and foremost step is to formally declare to issue a dividend. This decision is taken by the Board of Directors.
- In the second step, the number of existing shareholders needs to be counted and then kept in records. The record date comes with this second step in the dividend payment process.
- The third and the final step is when the dividend is actually paid and the checks are written and issued. The number of shareholders is to be kept in the record as of the date of records date because for a small firm it may be possible for the board of directors to know the number of shareholders but in case of public firms, the number of shareholders can be large.
It is very much important because of its relationship with another important factor- the ex-dividend date. It must be kept in mind that on and after the ex-dividend date, the stockholder or shareholder will not receive any dividend as the seller is entitled to it.
The ex-dividend date is the date which is set exactly two business days before the record date. This system exists because of the T+3 system of settlement presently in use in North America as per which stock trades settle three business days after the transaction is carried out.
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So if an investor decides to buy a stock two business days before its record date then his trade would only get settled the day after the record date. Then the investor will not be a shareholder of record for receiving dividend or distribution.
Example of Date of Record Dividend
Suppose a company XYZ Ltd has made a declaration of dividend on November 1st and identified November 16th as the Record Date. The record date of dividend declaration is made by the company’s board of directors in writing. This declaration implies that all the stockholders or shareholders on November 6th will receive a record date of a dividend. It is irrelevant that who owns stock on November 1st because November 16th is the date that the company XYZ Ltd. will record all of its shareholders.
Let us take an example of company ABC Ltd. which has made a formal declaration of $2 dividend per ABC share payable on August 1, 2017, to the shareholders of record as of August 20th, 2017. The date of record or record date is August 20th, 2017 and the ex-dividend date is to be set to two business days before the record date which is 18th August 2017.
So if a shareholder wants to receive the record date of a dividend of $2 per ABC share, then he must buy the stock before its ex-dividend date.
So if an investor hears that a company has declared dividends then he must buy the stock on or before the ex-dividend date. No journal entry is made on the record date since no transaction has actually happened on that date. The company only keeps a list or record of its shareholders on this date. A company’s record date is a very important concept to understand before the action of buying and selling dividend stocks.
Difference Between Record Date vs Ex-Dividend Date
The difference between Record Date vs Ex-Dividend Date is as follows:
|Record Date||Ex-Dividend Date|
|Record Date is set by the board of directors of a corporation.||The ex-dividend date is dictated by stock exchange rules and regulations.|
|It refers to that date by which the investors must be on the company’s books and records so that they can get dividends for a particular stock.||It is usually set to two business days before the record date and for an investor to get dividend he must complete his stock purchase by the ex-dividend date.|
|Shares owned on the record date are eligible to get distributions.||Shares purchased on or after the ex-dividend date are not eligible to receive distributions.|
|This date has lesser importance to the investors.||This date has greater implications for portfolio management.|
Record Date is usually set to ascertain the holders of a particular stock to understand who are entitled to receive distribution and who are not. When a company makes preparation to distribute the record date of dividend among the shareholders this record of shareholders is used to understand who own the stocks on a particular date. This particular date is the date of the record or record date. The record date varies from among the types of securities. When any trade is executed then the investor becomes the owner of the record on the settlement.
Date of Record for Dividends Video
This has been a guide to what is Date of Record for Dividends. Here we discuss its meaning along with record date examples. We also discuss key differences between Record date vs ex-dividend date. You may have a look at these articles below to learn more about accounting –