All About Ex-Dividend and Record Date

If you scan through the stocks page in the newspaper or access any broker website you will find the mention of terms like ex-dividend date, record date, dividend announcement date, dividend payment date etc. As an investor in equities, you need to understand the relevance and importance of each of these dates specifically. But first what is a dividend announcement?

Understanding the dividend announcement date…

Dividend is the share of profit that is paid out to the shareholders as a post-profit appropriation. That means dividends are paid out of net profits of the company. Dividends are announced in percentage terms or in rupee terms. For example, if you are holding 1000 shares of Reliance Industries and the company declares 90% dividend, what does that mean for you? Dividend as always declared as a percentage of the par values / face value of the stock. For example, Reliance Industries has a face value of Rs.10 and so a 90% dividend will translate into a dividend of Rs.9 per share. In your case, since you are holding 1000 shares of Reliance you will receive Rs.9000 as dividend. The dividend announcement date is the date on which the exact dividend percentage is declared by the company at its AGM. But how will the company decide who will get the dividends and who will not get the dividends since ownership keeps changing. During the day, investors and traders keep buying and selling shares so who is the shareholder eligible to receive dividends? That is where the record date comes in.

What is the dividend record date all about?

The dividend record is the most important data point for deciding who is eligible to receive the dividends. All the names that appear on the list of shareholders at the close of the record date will be eligible to receive the dividends. Let us assume that the company when announcing the dividend and approving at the AGM declares 27th April as the record date. That means all shareholders whose names appear in the list of shareholders at the end of 27th April will be eligible to receive dividends. The shareholder records are maintained by the registrar and transfer agents (RTA) like Karvy, In-time and Datamatics etc. There is still a practical issue to be addressed here. Under the rolling settlement my shares will be credited only two days after the actual purchase. Therefore it will not be enough if I purchase by record date but it needs to be in my demat account by record date. That is where the ex-dividend date comes into the picture.

The role of the ex-dividend date for investors…

The ex-dividend date falls 1 trading day prior to the record date. In the above case, since the record date is 27th April, the ex-dividend date will be T-1 i.e. 26th April. Therefore the last cum-dividend date in this case will be 25th of April. This is assuming that there are no trading holidays in between. If there are any trading holidays then the ex dividend date gets pushed back accordingly. Remember, T-1 in this case is the date on which the stock starts trading ex-dividend. When the stock trading opens on 26th morning it will open ex-dividend! If you want to actually earn the dividend then you will have to purchase the shares on the last cum-dividend date which is 25th April in the above case. So if you buy the shares cum-dividend on 25th April then you will get the delivery by 27th April in which case you will be eligible to receive the dividends.

What is the dividend payment date?

The last step in the dividend process is the actual payment of dividend. In case your bank mandate is not registered with the registrar then the dividend warrant is mailed to your registered address. In case your bank mandate is already registered then the funds will be directly credited to your bank account via NEFT. But when is the dividend paid? This will again depend on whether the dividend that is being paid out is an interim dividend or the final dividend. In case of interim dividend, the actual payout to the shareholders must happen within a period of 30 days from the date of dividend announcement. In case of final dividends, the payout to shareholders must happen within 30 days from the date of the Annual General Meeting (AGM).

Dividend record dates help us in determining who is eligible to receive dividends and the ex-date helps us to decide when to buy the shares to receive the dividends.