Ex Date vs Record Date

Every investor, when planning to invest, has a different and clear objective. Some people want to invest for regular income, while others are trying to save it for retirement. When you plan on investing in the stock market, dividend investing is one of the strategies that people use for long-term growth. It means investing in companies that offer profitable returns and pay dividends constantly.

Within the concept of dividends are two dates people generally get confused about. Ex-date vs record date is a topic that this blog will discuss to clear every confusion for your successful investment.

What is an Ex-date in the Stock Market?

Ex-dividend date or ex-date is the date on or after which the buyer of a company's stock becomes ineligible for the dividend payout. Once you purchase the share of any company, it gets credited to your demat account only after T+2 days. If you purchase the shares on Tuesday, they will be credited to your account on Thursday.  

Now, if the company declares an upcoming dividend on, for instance, July 30th, Tuesday, and the record date is August 8th, Thursday, the ex-dividend date will be August 7th, Wed. It would mean anyone who may have bought the stocks on August 7th or later will not be eligible for the dividend.
 
The above example of the company is just an illustration to understand ex-date and therefore, it is important that you must understand what is ex-date and record date for investing and receiving dividends.

What is a Record Date in the Stock Market?

A listed company on the stock exchange sees fluctuation in the ownership of the shares daily. Because the ownership of the shares changes frequently, it becomes difficult to announce the dividend to the shareholders accurately. In such a scenario, the listed company fixes a date, and all the on-record company’s shareholders are eligible for the dividend on that particular date.

The date the company fixes to pay the dividend is the record date. Many companies also refer to it as the date of the record. So, both mean the same, and you should not get confused.

So, to understand it through an example - if XYZ company is listed on the stock market and pays a dividend to its shareholders and decides January 10th 2022, as its record date, all the on-record shareholders will receive the dividend at the end of the trading session on January 10th 2022.

The Purpose of Ex-Date and Record Date in the Stock Market

Ex-date and record date hold significant importance in the investor’s journey as these dates determine when they will be paid their dividend. Once the stock ownership is transferred to the stockholder’s account, the owner gets listed on the company’s dividend-paying list.

The company determines the ex-dividend date vs the record date, and the shareholders will receive their dividends on those dates. So, to simplify it, the record date is the date by which you should be registered on the company’s list to receive the dividend, and the ex-date is the cutoff date on or after which you will become ineligible for the dividend. 

Therefore, understanding the purpose of ex-date vs record date makes a difference in the total amount you can make as an investor.

How do Ex Date and Record Date Affect Shareholders?

Ex-date and record date are two dates on which the dividends are determined for the shareholders. To understand how it will affect you as a shareholder, let's go through an example:

For example, the company ABC announced dividends on April 20th, 2022; its record date is May 5th, 2022. So, April 20th 2022, will be considered a declaration date, and May 3rd 2022, will be considered an ex-dividend date or ex-date. You should buy the particular stock on or before this date. Ex-date is generally two days before the record date; in this case, the record date will be May 5th, 2022. 

Now, if you have bought the stocks before the ex-date, which is May 3rd 2022, you will be eligible to get the dividend advantage, and if you have bought after the ex-date, you will not be eligible for dividends.

Determining Eligibility for Dividends and Stock Splits Based on Ex-Date and Record Date

When a person invests in the stocks of any particular company, they do it to grow their wealth. For that purpose, the company offers a dividend that will act as an income for that individual. But it is not that you buy the stock and get eligible for the dividend. The dividend also depends on when you bought the stock and registered with the company.

So, to be eligible for the dividend, you will need to buy the stocks before the ex-dividend date, which generally is two days before the record date. Also, remember it takes T+2 days to get registered and updated, so keep those as buffer days and do not just wait for the last date to buy the stocks. 

The Relationship Between Ex-Date, Record Date, and Dividend Payment Date

Now that you have understood the ex-date and the dividend's record date, it is important to understand how they are interrelated and what the dividend payment date is. The company declares the record date for the dividend, but the ex-date of the dividend is announced based on the stock exchange rules. 

Stock traders are allowed a settlement period on exchanges; thus, the ex-date is generally two days before the dividend's record date. So, if you purchase the stocks before the ex-date, you will show as a registered shareholder of the company on the due date. Hence, the relationship between the two dates.

The dividend payment date is when the company will actually be making the dividend payment to all the stockholders. So, to help you understand, let’s look at the equation below:

Company A announces its due date as 10th April 2022, so its ex-date will be 8th April 2022, and its payment date is 11th May 2022. So, if you purchase the stock before 8th April 2022, you will appear as a registered shareholder on 10th April 2022 and get your dividend on 11th May 2022.

Factors to Consider When Trading Stocks Around Ex-Date and Record Date

Your main purpose of investing in a stock market is to make some extra cash or for some it could be for a long-term investment. Whatever may  be the reason, it is important to understand what factors can affect your dividend amount when you trade your stocks around ex-date and record dates.

The essential factor to consider is how and who will get the dividend of the stock purchased. If you want your dividend within the current dividend cycle, you should purchase your stocks before the ex-date of the company.

Similarly, if you feel that the stock prices are great, but it does not matter whether you receive the current cycle dividend, you can purchase the stocks anytime, even after the ex-date. In such a scenario, the seller who sold you the stocks will get the dividend despite you owing the stocks at the present moment.

So, in a nutshell, a dividend is the most important factor that should be considered when you trade stocks during ex-date and record dates.

Conclusion
Ex-date and record dates are two dates that play a very significant role in the dividend process of any stock. Suppose you have purchased the stocks but are not registered in the company as of the record date. In that case, you will not be eligible for the company's dividend advantages to its shareholders. 

Therefore, when trading stocks, remember the ex-date, generally two days before the record date, and purchase your stocks on or before that date. Additionally, the shareholder is not paid on the ex-date but is paid on the dividend payment date.

Frequently Asked Questions

Q: Can I get a dividend if I buy on the ex-date?

Ans: You will not receive dividends if you buy the stocks on the ex-date. It is because it takes T+2 days to get registered in the company’s shareholder’s list, and it will surpass the record date on which the company checks the name of the shareholders for the dividend.

Q: Can I sell shares on ex-date?

Ans: Yes, as an investor, you can sell your shares on the ex-dividend date and still get the company's dividend.

Q: How many days after the ex-date is the record date?

Ans: The record date of the company is generally two days after the ex-date. In some cases, it is also seen that the difference is one day instead of two. The company announces the record date, but the ex-date is announced based on the stock exchange rules.