Understanding all about Dividend Ex date and Dividend record date - Motilal Oswal
Understanding all about Dividend Ex date and Dividend record date - Motilal Oswal

Understanding all about Dividend Ex date and Dividend record date

If you hold shares in a company, then you must be familiar with terms like ex-dividend, dividend record date, book closure start data, book closure end date etc. There is a very subtle difference between all these terms and as a stock market investor it is essential for you to understand these terms in the right perspective. What is the difference between dividend ex date and record date? We also need to understand what does ex dividend date and record date mean? Is it possible to sell between ex-dividend date and record date? Let us first look at a live corporate action sheet to understand these terms..

 

Source: NSE

 

Dividend announcement date..

Dividend is a payout to shareholders out of profits made by a company. Dividends are a post-tax appropriation and is paid out to shareholders and expressed either in rupee terms or in percentage terms. For example if the face value of the stock is Rs.10 and the company announces 30% dividend then it means that a dividend of Rs.3 per share will be paid out to shareholders. So if you are holding 1000 shares of the company then you will receive Rs.3,000 as dividends. But the question is who will receive the dividends? When a share is traded in the stock markets then there are buy and sell orders in a stock through the day. How does the company determine which shareholders should be paid the dividends declared. That is the where the record date comes into play.

 

What is the importance of record date?

The dividend is paid to all shareholders whose names appear in the shareholder records of the company at the end of the record date. Normally, the shareholder records of a company to decide dividend entitlement is maintained by registrar and transfer agents like Karvy, In-time Spectrum etc. All the shareholders whose names appear in the records of the RTA as at the end of the Record Date will be entitled to receive the dividends. So if a company declares the record date 20th April, then all the shareholders whose names appear in the company records as at the end of 20th April will be entitled to receive the dividends. But there is a problem here! When I buy shares I get the delivery of shares only after T+2 days that is on the second trading day after the transaction date. That is where the concept of ex-dividend date comes in..

 

The role of ex-dividend date..

The ex-dividend date actually addresses the above issue of T+2 delivery date. The ex-dividend date is fixed as 2 trading prior to the record date. In the above case, since the record date is 20th April, the ex-dividend date will be 18th April. If there are trading holidays in between then the ex-dividend date will pushed back accordingly. What does the ex-dividend date indicate? You have to buy the shares of the company before the ex-dividend date so that you get the delivery by the record date and therefore are entitled to dividends. The stock normally starts trading ex-dividend on the XD date.

 

Book closure dates..

Normally, during the book closure period any transfer of share requests are not entertained by the registrar. For example; if you buy shares during the book closure or if you buy shares just prior to the book closure, then you will get the actual delivery of shares only after the book closure periods ends.

 

Actual payment of dividend on shares..

The final step is the actual payment of the dividends. If your bank mandate is registered with the registrar then the dividend amount will be automatically credited to your bank account. If you are holding physical shares or if your bank mandate is not registered then your dividend cheque will be mailed to you at your registered address. The date of payment of dividend will depend on whether the payout is an interim dividend or it is a final dividend. In case of interim dividend, the payout to the shareholders has to happen within 30 days from the date of the announcement of the dividend. However, in case of final dividend, the actual payment of dividend only has to be made within 30 days of the Annual General Meeting (AGM).

 

Understanding these nuances of dividend declaration is the key to making the best of your dividend experience.
 

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