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Who does not like additional perks besides the obvious benefits one may reap through a certain venture? And in the world of stocks and shares, this perk takes the form of u2018dividendsu2019 paid to shareholders by companies and institutions.
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Record Date Vs. Ex-Dividend Date: Knowing the Basic Differences
Introduction • Who does not like additional perks besides the obvious benefits one may reap through a certain venture? And in the world of stocks and shares, this perk takes the form of ‘dividends’ paid to shareholders by companies and institutions. Simply put, a dividend is a systematic distribution of the profits that a company earns in the long run. The company evenly distributes these profits to its loyal shareholders in addition to the regular interest pay-outs that they may receive regularly. The prospect of earning significant dividend amounts often acts as a motivation for one’s investment in stocks and shares.
While buying dividend shares, it is important to understand the process that a private company or start-up may follow to earmark the shareholders eligible for the dividend amounts. And record dates and ex-dividend dates act as important determinants in this process of distributing dividends. So, what roles do these two dates play in this process, and why should these matter to a shareholder? Take a look:
Record Date • The record date is the date on which a private company or firm lists the shareholders who are eligible to receive its dividends. • This date plays a significant role in the dividend distribution process since the shareholders of an active equity investment avenue often change constantly, and the record date helps companies to close in on a final set of eligible shareholders. • Typically, the record date is finalized by the board of directors, and the shareholders to be provided with the dividends are enlisted in the company’s books. • The record date is inextricably linked to another important date – namely, the ex-dividend date – which works in tandem with the record date to shortlist the eligible shareholders.
Ex-Dividend Date • The ex-dividend date is the cut-off date that falls approximately one business day before the record date. This is the date by which the individuals interested in receiving dividends from the company are expected to buy its shares. Thus, individuals toying with the idea of buying a certain dividend stock must carry out the relevant equity market research and make their stock investment decision before the ex-dividend date.
The ex-dividend date is set up as per the stock exchange guidelines. Contrary to popular belief, individuals who purchase shares on the record date as opposed to the ex-dividend date are not eligible for receiving dividends from the company. • Typically, the ex-dividend date follows after the declaration date, which is the date on which the company announces that it would be paying out dividends to its shareholders. • It is followed by the record date and finally the payable date, which is the date on which the company starts giving out dividends to the selected shareholders.
CONCLUSION • The record and ex-dividend dates are important milestones for dividend shares and the companies offering the same. However, the two dates are often perceived interchangeably by novice investors and traders. To reap the maximum benefits of the dividends offered by private companies, it is important to understand the distinct functions of these two dates and buy shares accordingly to receive the dividends. Coordinating with reputed share brokers and investment advisors to understand the working of shares more in-depth helps one to navigate the stock market more seamlessly. We would be glad to hold your hand as you find your way in the stock market world.
