A record date is when a company identifies shareholders who will receive a dividend. The ex-dividend date is the first day of the ex-dividend period, and the stock price typically decreases by the amount of the dividend. Mutual funds and asset-backed securities also have record dates. Transactions must be settled before the record date for the buyer to receive the dividend or distribution.
A record date is the date a company identifies the shareholders to whom it will pay an upcoming dividend. Owners of the shares as of the record date will receive the dividend. Once the date has arrived, the stock price will typically decrease by the amount of the dividend. This is known as “ex dividend trading”. The reason a stock trades ex-dividend is because if the shares are sold after the record date, the seller, who was the shareholder on the record date, receives the dividend.
The ex dividend date is the first day of the ex dividend period. The ex-dividend period is the period of time from the record date to the date the dividend is actually paid. A stock trades ex dividend for the entire ex dividend period.
On August 1, a company could declare a dividend payable on September 1 to shareholders of record on August 15. In this case, the registration date is August 15. All shareholders of record on August 15 will receive the dividend. The stock will trade ex dividend from August 16 to September 1.
With respect to mutual funds, the record date is used to determine each owner and the number of shares held on a given date, in order to pay distributions to shareholders. Mutual fund distributions are generally paid annually or semi-annually, although the securities in the funds will pay dividends at various times throughout the year. Shareholders of record on the record date will receive the distribution on the distribution date.
The record date for asset-backed securities is the date the owners are identified so that a scheduled payment can be distributed. Owners on or after this date will receive payment on the payment date. Asset-backed securities are debt instruments that are backed by specific assets, such as accounts receivable or forward contracts. As accounts are collected or installment payments are made, payments are distributed to the owners of the securities in accordance with the terms of the guarantee.
Whenever securities are bought or sold, there is a settlement period before the transaction is recorded. A trade in stocks or municipal bonds settles three days after the sale. US government bonds and mutual funds generally settle the day after the trade date. This is important to keep in mind, as the trade must be settled before the record date in order for the buyer to receive the dividend or distribution.
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