Major Dividend Dates: Ex Dividend Date, Record Date
Created on 25 Mar 2021
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Updated on 15 Nov 2021
There are some days in life when you can't help but smile. They drop in like a ray of hope in tough times. Like the month-end salary credit date, date of credit of interest on deposits and even the date of receipt of dividend. Hence, it's imperative for us to have an idea of these due dates.
Well, are you someone who hears the dividend dates frequently but fails to interpret them? Okay, don't worry. We have got you covered. There are four main dates involved in the dividend process.
Important Dividend Dates
In this article, let's understand these dividend dates and their significance.
Dividend Declaration Date
The first step in the process is the declaration of dividends. It is the date on which the Board of Directors declare the dividend. The Board gives information about the further dates. And the dividend per share is declared. It may be announced on the same day the company releases quarterly results. After the declaration of dividends, a company needs to determine the shareholders who will be eligible to receive the same.
Subsequent to this, the dates involved in the dividend process are as follows:
Can you imagine how tedious it is for a listed company to keep a record of shareholders who will receive the dividend? It is so because the shareholders change in the blink of an eye. That is why the concept of record date was initiated to know the eligible shareholders.
It is the cut-off date that determines the eligibility of shareholders to receive the dividend. The people who will have the shares on this date will get the dividend. But if you are thinking of buying them on this date to get a dividend, your efforts will be in vain! It is so because there is a T+2 settlement system, i.e., it takes two days for the shares to get credited to your Demat account.
So, buying shares on the record date will not be beneficial, as the shares will be credited two days later. Hence, the previous owner, from whom you purchased the shares, will be entitled to receive the dividend.
There is a concept of the ex-dividend date to avoid these situations. Let's understand it.
This date comes before the record date but depends on the same. It is the last date by which investors can buy the shares to receive the dividend. As mentioned above, it takes two days for the shares to get credited to your account. Therefore, the ex-dividend date is two days before the record date. Simple.
Investors buying shares after the ex-dividend date won't be eligible to receive the dividend. So, it acts as a deadline for the investors who want to get the dividend.
Impact on Share Price
The ex-dividend date is the deadline for the investors to get the dividend. Prior to this date, the share price also includes the dividend to be received by the investors. Let's understand it in detail.
When the Board of Directors announces a dividend, demand for the company's shares rises in the market. The share price increases proportionately with the dividend amount. The investors will get the dividend if they hold the shares. The higher the dividend, the higher the rise in the share price of the company.
But after the ex-dividend date, investors won't be able to receive the dividend. So, the share price only contains the fair value of the shares. And the dividends cease to exist in the share price. That is why the stock price falls proportionately with the dividend amount after the ex-dividend date. If you wish to purchase the shares at a discount, the ex-dividend date is the day.
It is the date on which the shareholders receive the dividend. It is the last stage in the dividend process. According to the Companies Act, the company has to pay a dividend within 30 days of declaration. Else, the company may have to face a penalty. So, all the prior stages occur within 30 days.
In the case of an interim dividend, the company has 30 days from the announcement date to pay it. The final dividend is to be paid within 30 days from the date of the Annual General Meeting (AGM).
You might be confused with all of these dates. So, let's understand the timeline with an example:
Recently, Indian Oil Corporation Ltd (IOCL) announced on 10th March 2021 that a meeting would be there on 16th March regarding the Interim Dividend. In the meeting, it declared an interim dividend of Rs. 3 per share) for all the shareholders having shares of the company on 24th March 2021.
In this case, the declaration date was 10th March. The record date is 24th March. And the ex-dividend date is determined to be 23rd March. As the company announced the dividend on 16th March, it has to be paid within 30 days, i.e., 15th April 2021. So there you are.
How to Get the Most out of them?
The dividend is a golden opportunity for the investors who have shares of a company at the time of announcement. If the share price increases more than the dividend amount, they can sell the shares before the ex-dividend date. And can purchase them again after this date. Then they can get the shares at a discount and probably fetch more returns than receiving a dividend.
But the investors who are buying the shares for the sake of dividends should be alert! In the above situation, they won't have any real profit. Also, they will lose the opportunity to realize capital gains for sometime after the ex-dividend date, as the share price is bound to fall.
Declaration Date is the date the Board of Directors declares the rate of the dividend. The record date is a cut-off date to determine the shareholders entitled to receive the dividend. The ex-dividend date is the deadline to buy the shares if the shareholders want to receive the dividend. It is two days before the record date due to the T+2 settlement system in India. After this day, the share price falls proportionately with the amount of dividend declared. The payment date is the date the shareholders receive the dividend, which is 30 days from the date of declaration as per law.
Anyway, before you rush in to buy shares for the sake of dividend alone, do the necessary calculations, exercise your rationale, and only then make the decision.
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